i

DECLARATION

I, Ritesh Biharilal Sarve, a student of MBA (Power Management) 2011-13 batch at Centre for

Advanced Management and Power Studies (CAMPS), NPTI, Faridabad, Roll No.

1120812256,completed my summer internship of eight weeks at Rural Electrification

Corporation Ltd, hereby declare that Summer Internship Report titled “A) Entity Appraisal

and Project Appraisal of Private Transmission Project in Western Grid and B) Financing &

Implementation of RAPDRP scheme in Amritsar under PSPCL” is an original work and the

same has not been submitted to any other institute for award of any other degree.

A Seminar presentation of the Training report was made on 31/08/12 and the suggestions as

approved by the faculty were duly incorporated.

Presentation In-charge Ritesh Biharilal Sarve

NPTI, Faridabad MBA in Power Management

NPTI, Faridabad

Counter Signature

(Director/Principal of the institute)

ii

ACKNOWLEDGEMENT

Words often fail to pay one‟s gratitude oneself, still I would like to convey my sincere thanks

to the people who helped and extended their support in this Endeavour.

I would like to express my sincere thanks to Mr. Sanjeev Kumar Gupta, G.M. T&D, for

providing me with an opportunity to gain such an enriching exposure in this esteemed

Organization.

I also express my thanks to all the staff at REC, from all departments I got in touch with,

specially Mrs. H.K.Chani, Chief Manager (T&D) for providing us scholarly guidance

throughout the project which helped me to develop an insight into the project topic through

personal consultations. Without whom this dissertation would not have been possible. I

would also like to thanks Mrs. Valli Natarajan, DGM (T&D), Mr. Vivek aggarwal, Dy.

Manager (T&D), Mr. Debashish Mitra, Dy Manager (T&D) and Mr. Raman Garg, Engineer

(T&D) for their valuable inputs in completion of this project.

I also express my gratitude to my college authority and Mr. J.S.S. Rao, Principal Director,

National Power Training Institute, Mr. S.K. Choudhary, Principal Director, (CAMPS) NPTI

& Mrs. Manju Mam, Mrs. Indu Maheshwari, & Mr. Rohit Verma, Dy. Director,NPTI & Mr.

Amit Mishra, Asst.Director, NPTI for arranging my summer internship program with Rural

Electrification Corporation Ltd.

Ritesh Biharilal Sarve

10th

Batch

MBA (Power Management)

National Power Training Institute

iii

EXECUTIVE SUMMARY

The Mission of the Government is to provide quality power to all at reasonable rates.

The enactment of the Electricity Act in June 2003 was a major milestone, which paved the

way for development of the power sector within a competitive and liberal framework while

protecting the interests of the consumers, as well as creating a conducive environment for

attracting investments in the sector.

To ensure that the benefits of the increased availability of power reaches the poorest of the

poor living in the rural areas, the Government has implemented the Rajiv Gandhi Grameen

Vidyutikaran Yojana with vigour and determination. The Government‟s R-APDRP initiative

aims at reducing AT&C losses through application of IT for energy auditing and accounting

and through technological up gradation and strengthening of distribution infrastructure. Apart

from availability and access, it is imperative to supply reliable and quality power.

Rural Electrification Corporation Ltd. working towards fulfilling power sector borrower‟s

requirements by providing timely and prompt services and by mobilizing the funds from

various sources at lowest possible cost and strive to improve the customer‟s satisfaction on

continual basis.

During the period of 8weeks of my summer internship, I as a student of MBA (Power

Management) got an opportunity of thorough study of the two projects viz.

A) Entity Appraisal and Project Appraisal for the private transmission project in

western grid.

The main objective of this project is setting up 400kv D/C (Quad Conductor) transmission

line, LILO of existing 400KV S/C transmission line & 400 KV D/c (Twin Conductor)

transmission line and Substation work at various locations.

In this project I learned about the procedure of entity appraisal for private utilities. Two

stages of entity appraisal process i.e. a) Preliminary stages and b) Detailed Evaluation

Process.

In project Appraisal, I have studied various technical details of project, Clearances from all

concern entities and financial details of borrower.

iv

B) Financing and Implementation of RAPDRP scheme in Amritsar under PSPCL.

The main objective of the scheme is to reduce the AT & C loss ≤ 15% and make the system

economically viable and improve the reliability of supply to project Area.

This project gave me the thorough idea of RAPDRP programme of the government of India.

Also I came to know the financial benefits and other benefits under this scheme.

v

LIST OF TABLES

Table 1: Category of Schemes Financed Under T&D ............................................................................ 8

Table 2: Business Analysis ................................................................................................................... 23

Table 3: Market Analysis ...................................................................................................................... 24

Table 4: Score Table ............................................................................................................................. 24

Table 5: Financial Capability ................................................................................................................ 24

Table 6: Past Financial Position ............................................................................................................ 25

Table 7: ROCE ...................................................................................................................................... 25

Table 8: Operating Margin .................................................................................................................... 26

Table 9: DSCR ...................................................................................................................................... 27

Table 10: Total Debt to Net Worth ....................................................................................................... 27

Table 11: Cash Flow ............................................................................................................................. 28

Table 12: Finacial Flexibility ................................................................................................................ 29

Table 13: Equity Funding Potential ...................................................................................................... 29

Table 14: Raising of Fund ..................................................................................................................... 30

Table 15: Project Cost & Indicating Score ........................................................................................... 31

Table 16: Management Analysis........................................................................................................... 31

Table 17: Final Analysis for Preliminary Stage .................................................................................... 32

Table 18: Business Analysis ................................................................................................................. 35

Table 19: Financial Analysis ................................................................................................................ 35

Table 20: Management Analysis........................................................................................................... 36

Table 21: Final Analysis for Detailed Evaluation ................................................................................. 36

Table 22: Transmission Line ................................................................................................................ 37

Table 23: Sub-station ............................................................................................................................ 38

Table 24: Technical Details .................................................................................................................. 38

Table 25: Status of Clearances .............................................................................................................. 40

Table 26: Project Cost ........................................................................................................................... 45

Table 27 : Financing Plan ..................................................................................................................... 47

Table 28: Operational Cost, Price & Assumptions ............................................................................... 48

Table 29: Cost Benefit Analysis ........................................................................................................... 53

Table 30: Pre-Construction ................................................................................................................... 53

Table 31: Construction .......................................................................................................................... 54

Table 32: Post Construction .................................................................................................................. 54

Table 33: Items Included by the Utility Under Part-B .......................................................................... 64

Table 34: Brief Profile of State/Utility ................................................................................................. 67

Table 35: Project Area Details .............................................................................................................. 68

Table 36:Commercial Information........................................................................................................ 68

Table 37:Project Funding ...................................................................................................................... 70

Table 38:Financial Benefits .................................................................................................................. 70

Table 39: AT&C Losses ....................................................................................................................... 71

vi

ABBREVIATIONS AND ACRONYMS

ACSR Aluminium Conductor with steel reinforcement

APDRP Accelerated Power Development & Reform Program

AT&C Aggregate Technical and Commercial Losses

CEA Central Electricity Authority (of India)

CO Corporate Office

COD Commercial Operation Date

CPM Chief Project Manager

CPSU Central Public Sector Undertaking (India)

DPR Detailed Project Report

EHT Extra High Tension

EPC Engineering Procurement& Construction

EPS Electric Power Survey (of India)

FI Financial Institution

FIRR Financial Internal Rate of Return

GIS Geographic Information System

GOI Government of India

HT:LT Ratio High Tension: Low Tension Ratio

HVDS High Voltage Distribution System

IE Intensive Electrification

LILO Line in line out

LVDS Low Voltage Distribution System

MOP Ministry Of Power

MOEF Ministry of Environment & Forest

NEF National Electricity Fund

NHA National Highway Authority

NTPC National Thermal Power Corporation Ltd

PFC Power Finance Corporation Ltd.

PGCIL Power Grid Corporation of India Ltd

PTCC Power & Telecommunication Coordination Committee

P:SI Project System Improvement

PSPCL Punjab State Power Corporation Ltd

RAPDRP Restructured Accelerated Power Development

& Reform Programme

RGGVY Rajiv Gandhi Gramin Vidyutikaran Yojana

ROW Right of way

SCADA Supervisory Control and Data Acquisition

SERC State Electricity Regulatory Commission

STPS Super Thermal Power Station

vii

TABLE OF CONTENTS

Declaration…………………………………………………………………………...……..…i

Acknowledgement……………………………………………………………………....….....ii

Executive Summery…...……………………………………………………….………..........iii

List of tables..............................................................................................................................v

Abbreviations and Acronyms…………………………………………………………....…...vi

CHAPTER -1

INTRODUCTION

1.1 TRANSMISSION SECTOR IN INDIA.......………....……………..................................1

1.2 RAPDRP SCHEME IMPLEMENTATION........................................................................2

1.3 PROBLEM STATEMENT..................................................................................................2

1.4 OBJECTIVE.........................................................................................................................3

1.5 SCOPE OF WORK..............................................................................................................3

1.6 ORGANISATION PROFILE..............................................................................................5

1.6.1 Performance Highlights………..……………………………………………………....6

1.7 CATEGORY OF SCHEMES FINANCED UNDER T&D………………………….........8

CHAPTER-2

LITERATURE SURVEY, POLICY AND RESEARCH METHODOLOGY

2.1 REVIEW OF EXISTING LITERATURE ……..………………………….………….......9

2.2 TRANSMISSION POLICIES IN INDIA..................................................................…....12

2.2.1 The Guideline………………………………………………………………………..12

2.2.2 Objective of the Scheme……………………………………………………………..12

2.2.3 Scheme Area……………………………………………………………………...…12

2.2.4 Scope of Work.............................................................................................................13

2.2.5 Format of the Schemes………………………………………………………………14

2.2.6 Estimation of load Demand………………………………………………………….14

2.2.7 Entity Appraisal……………………………………………………………………...14

2.2.8 Extent of Exposure of Utility………………………………………………………..14

2.2.9 Cost Data………………………………………………………………………….....15

2.2.10 Project Implementation.............................................................................................15

viii

2.2.11 Deviation Proposal....................................................................................................16

2.2.12 Project Financing.......................................................................................................16

2.2.13 Enhancement of Loan Amount..................................................................................17

2.2.14 Interest during Construction (IDC)...........................................................................17

2.2.15 Disbursal of the Loan................................................................................................17

2.2.16 Financial Viability.....................................................................................................18

2.3 STEPS FOR APPROVAL PROCESS OF T&D SCHEMES............................................19

CHAPTER 3

ENTITY APPRAISAL AND PROJECT APPRAISAL OF PRIVATE TRANSMISSION

PROJECT IN WESTERN GRID

3.1 INTRODUCTION..............................................................................................................22

A) ENTITY APPRAISAL PROCESS FOR PRIVATE TRANSMISSION PROJECT.......22

A.1 PRELIMINARY APPRAISAL.......................................................................................22

A.1.1 Precondition for Evaluation......................................................................................22

A.1.2 Evaluation process...................................................................................................22

A.1.3 Scoring process.......................................................................................................22

A.1.4 Appraisal Process....................................................................................................23

A.1.4.1 Business Analysis................................................................................................23

A.1.4.2 Financial Analysis.................................................................................................24

A.1.4.3 Management Analysis Framework.......................................................................31

A.1.5 Final Analysis for Preliminary Stage.......................................................................32

A.1.6 Decisions Points based on the Result.....................................................................33

A.2 DETAILED APPRAISAL ..........................................................................................33

B) PROJECT APPRAISAL..................................................................................................37

B.1 Project Details.......................................................................................................37

B.2 Clearances and Approval........................................................................................41

B.3 Project Review........................................................................................................41

B.4 Implementation Plan...............................................................................................44

B.5 Project Cost.............................................................................................................45

B.6 Financial Plan.........................................................................................................47

B.7 Selling Arrangement...............................................................................................47

B.8 Operation Costs, Prices & Assumptions.................................................................48

B.9 Cost Benefit Analysis.............................................................................................53

B.10 Project Risk Analysis............................................................................................53

B.11 Strength & Weaknesses........................................................................................55

ix

B.12 Row & Forest Clearances Related issue ..............................................................56

CHAPTER 4

FINANCING AND IMPLEMENTATION OF RAPDRP SCHEME IN AMRITSAR

UNDER PSPCL

4.1INTRODUCTIOT TO RAPDRP PART-B.........................................................................62

4.2 PROJECT OBJECTIVE.....................................................................................................67

4.3 PROJECT AREA DETAILS.............................................................................................68

4.4 COMMERCIAL INFORMATION....................................................................................68

4.5 SCOPE OF WORK............................................................................................................69

4.6 PROJECT FUNDING........................................................................................................70

4.7 PROJECT BENEFITS.......................................................................................................70

4.8 PROJECT BENEFITS (AT & C LOSSES).......................................................................71

CHAPTER 5

CONLCUSION, LIMITATIONS, RECOMMENDATION AND FUTURE SCOPE

5.1 CONCLUSION..................................................................................................................72

5.2 LIMITATIONS..................................................................................................................73

5.3 RECOMMENDATIONS...................................................................................................74

5.4 FUTURE SCOPE ..............................................................................................................74

6. BIBLIOGRAPHY..............................................................................................................75

x

1

CHAPTER 1

1.1 TRANSMISSION SECTOR IN INDIA Power Sector forms one of the key constituents of Infrastructure essential for the growth of

the Economy. Compared to the other core sectors, the performance of the Power Sector

stands out during the fiscal 2012. A record 20,501 MW was added to the installed capacity in

the year 2011-12 against a capacity addition target of 17,601 MW. In accordance with the

projected estimates of the Planning Commission for XII Five year Plan, 88,425 MW of

capacity addition is required on all India basis. The overall fund requirement for the projected

addition has been estimated at around Rs. 16 lakh crore including commensurate back to back

investment in Transmission and Distribution network.

The transmission systems in the country consist of Inter-State and Intra State Transmission

System. Over decades a robust inter-state and inter-regional transmission system has evolved

in the country. Inter State (and Inter-regional) transmission system is mainly owned by

POWERGRID. In future, Inter-State Transmission System (ISTS) schemes would also be

built through competitive bidding by private sector entities. Already, a number of such

schemes by the private sector or joint venture between private sector and POWERGRID are

under construction. Planning and developing inter-state transmission system for IPP projects

is a challenging task because there is greater uncertainty about their actual materialization,

commissioning schedule and their beneficiaries are most often not known at the time of

transmission planning. The process of transmission planning and development has become

very dynamic in the market driven scenario.

At the time of Independence, power systems in the country were essentially isolated

systems developed in and around urban and industrial areas and the highest transmission

voltage was 132 kV. The state-sector network grew at voltage level up to 132 kV during the

50s and 60s and then to 220 kV during 60s and 70s. Subsequently, in many states (U.P.,

Maharashtra, M.P., Gujarat, Orissa, A.P., and Karnataka) substantial 400kV network was also

added as large quantum of power was to be transmitted over long distances.

Considering the operational regime of the various Regional Grids, it was decided

around1990s to establish initially asynchronous connection between the Regional Grids to

enable them to exchange large regulated quantum of power. Accordingly, a 500 MW

asynchronous HVDC back-to-back link between the NR - WR at Vindhyachal was

established. Subsequently, similar links between WR – SR (1000 MW capacity at

Bhadrawati), between ER – SR (1000 MW capacity at Gazuwaka) and between ER – NR

2

(500 MW capacity at Sasaram), were established. In 1992 the Eastern Region and the North-

Eastern Region were synchronously interconnected through a Birpara-Salakati 220kV double

circuit transmission line and subsequently by a 400 kV D/C Bongaigaon -Malda line.

Western Region was interconnected to ER-NER system synchronously through 400kV

Rourkela-Raipur D/C line in 2003 and thus the Central India system consisting of ER-NER-

WR came in to operation. In 2006 with commissioning of Muzaffarpur-Gorakhpur 400kV

D/C line, the Northern region also got interconnected to this system making an upper India

system („NEW‟ grid) having the NR-WR-ER-NER system.

1.2 RAPDRP SCHEME IMPLEMENTATION

Ministry of Power, Government of India, has launched the Restructured Accelerated Power

Development and Reforms Programme (R-APDRP) in July 2008 with focus on establishment

of base line data, fixation of accountability, reduction of AT&C losses upto 15% level

through strengthening & up-gradation of Sub Transmission and Distribution network and

adoption of Information Technology during XI Plan. Projects under the scheme shall be taken

up in two parts. Part-A shall include the projects for establishment of baseline data and IT

applications for energy accounting/auditing & IT based consumer service centres. Part-B

shall include regular distribution strengthening projects and will cover system improvement,

strengthening and augmentation etc.

It is proposed to cover urban areas - towns and cities with population of more than 30,000

(10,000 in case of special category states). In addition, in certain high-load density rural areas

with significant loads, works of separation of agricultural feeders from domestic and

industrial ones, and of High Voltage Distribution System (11kV) will also be taken up.

1.3 PROBLEM STATEMENT

As there is no license required for Generation of power under the Electricity Act, the

generators who construct dedicated transmission lines defined separately in the Electricity

Act are not being governed by the Work of Licensee Rules applicable to Transmission &

Distribution Licensees. As a result, there are disputes between generating companies and

owner/occupier of the land over which such lines are laid, which are essentially on the issue

that dedicated transmission lines were laid without taking prior consent from the owner or

occupier.

3

Each state needed to test the adequacy of transmission with respect to various uncertainties

such as fuel shortage, contingencies, high load growth without commensurate increase in

internal generation etc. Such instances would be frequent and have to be factored for such

uncertainties. Investment in a robust transmission system would also allow greater economy

interchange.

1.4 OBJECIVES

The Company has been funding power generation, transmission and distribution projects

besides funding electrification of villages and Pumpsets energisation. It continued to play an

active role in creating new infrastructure and improving the existing ones under the

transmission and distribution network in the country. In line with the country‟s objective to

provide “power for all” by the year 2012 and also reduce the AT&C losses, the Company

has been laying special thrust in expansion and strengthening of existing transmission

network and more importantly modernising of the distribution system by financing

investment in transformers, meters, capacitors etc. and for conversion of Low Voltage

Distribution to High Voltage Distribution System (HVDS).

In line with the national objective of providing power for all by the year 2012 and also of

reducing the AT&C losses, company has been financing schemes for expansion and

strengthening of the transmission network and more importantly, modernising the distribution

system.

1.5 SCOPE OF WORK

(A) Distribution Category- (13 years tenure except for Bulk loan which is for 7 years) -

Schemes covering voltage up to 11KV on secondary side of sub-station).

(i) System Improvement – To overcome the system deficiencies and to improve the quality

and reliability of power supply, REC finances System Improvement schemes, based on

system studies of an electrical distribution network considering present status of system

capacities, connected demand, voltage profiles and level of losses, together with scope for

future load growths. System deficiencies and weaknesses are identified and suitable solutions

identified.

This broadly includes creation of new sub-stations and feeders, augmentation of existing

Capacities of sub-stations and feeders, installation of capacitors, provision of efficient and

4

tampers proof meters, introduction of innovative equipment and technologies which help in

energy savings and improving the quality of power supply. This results in the supply of better

quality and more reliable power to the consumers and increased revenue to the Power

Utilities. The system improvement programme also includes Bulk loan schemes meant for

procurement and installation of meters, transformers etc, and HVDS schemes meant for

conversion of LVDS to HVDS so as to improve the HT: LT ratio. System Improvement

schemes reduce the AT&C losses to a great extent. Since launch of the programme in 1987-

88, REC has so far sanctioned projects for a loan assistance of Rs 84701 crores till March 12.

(ii) Intensive Electrification – The scheme for intensive electrification of electrified villages

has been termed as Projects Intensive Electrification (P: IE). Schemes under this activity

mainly aim at intensive electrification of already electrified villages. The basic purpose is to

cover intensive load development for providing connections to rural consumers in already

electrified villages. The required infrastructure of DTs, 11 KV lines and 33 KV lines are

provided for in these schemes to extend supply to various types of consumers. Financing of

schemes under the nomenclature of IE started from 1998-99 onwards (similar works were

earlier covered under various categories of schemes for village/dalit basti and hamlet

electrification through REC‟s own sources of financing and under budgetary support). Since

then, till March 12, schemes for a loan assistance of Rs. 6070crores have been sanctioned

under P: IE category.

(iii) Pumpset Energisation – REC started this programme to provide funds for schemes for

energisation of pumpsets, in order to facilitate agriculture. Thus the schemes are termed as

Special Project Agriculture (SPA). Since the start of the programme, till March 12, loan

assistance of Rs. 10582crores has been sanctioned under this programme.

(iv) APDRP Programme: The Accelerated Power Developments and Reforms programme

(APDRP) was launched by the GOI in 2001-02. The MoP sanctions the schemes based on the

recommendations of the concerned Advisor cum Consultants, who formulate the DPRs for

the utilities. The role assigned to REC regarding this programme is extending counterpart

funding to the states (which was 50% of project cost earlier, but now revised to 75%), based

upon the sanction of MOP. Since the launch of the programme, REC has provided a loan

assistance of Rs.5899 crores for year 2011-12

5

1.6 ORGANISATION PROFILE

REC (Rural Electrification Corporation Limited) a NAVRATNA Central Public Sector

Enterprise under Ministry of Power was incorporated on July 25, 1969 under the Companies

Act 1956. REC is a listed Public Sector Enterprise of Government of India with a net worth

of Rs. 14745 Crores as on 31.03.12. REC is a leading public Infrastructure Finance Company

in India‟s power sector. The company finances and promotes rural electrification projects

across India, operating through its Corporate Office located at New Delhi and 17 field units

(Project Offices), which are located in most of the States. The company provides loans to

Central/ State Sector Power Utilities, State Electricity Boards, Rural Electric Cooperatives,

NGOs and Private Power Developers.

The Project Offices in the States coordinate the programmes of REC‟s financing with the

concerned SEBs/State Power Utilities and facilitate in formulation of schemes, loan sanction

and disbursement and implementation of schemes by the concerned SEBs/State Power

Utilities.

MISSION

• To facilitate availability of electricity for accelerated growth and for enrichment of quality

of life of rural and urban population.

• To act as a competitive, client-friendly and development oriented organization for financing

and promoting projects covering power generation, power conservation, power transmission

and power distribution network in the country.

OBJECTIVES

In furtherance of the Mission, the main objectives to be achieved by the Corporation are

listed below:

• To promote and finance projects aimed at integrated system improvement, power

generation, promotion of decentralized and non-conventional energy sources, energy

conservation, renovation and maintenance, power distribution with focus on pumpset

energisation, implementation of Rajiv Gandhi Gramin Vidyutikaran Yojana, a

Government of India scheme for rural electricity infrastructure and household electrification.

• To expand and diversify into other related areas and activities like financing of

decentralized power generation projects, use of new and renewable energy sources,

6

consultancy services, transmission, sub transmission and distribution systems, renovation,

modernization & maintenance, etc. for optimization of reliability of power supply to rural and

urban areas including remote, hill, desert, tribal, riverine and other difficult / remote areas.

• To mobilize funds from various sources including raising of funds from domestic and

international agencies and sanction loans to the State Electricity Boards Power Utilities, State

Government, Rural Electric Cooperatives, Non-Government Organizations (NGOs) and

private power developers.

• To optimize the rate of economic and financial returns for its operations while fulfilling the

corporate goals viz. (i) laying of power infrastructure; (ii) power load development; (iii) rapid

Socio-economic development of rural and urban areas, and (iv) technology up-gradation.

• To ensure client satisfaction and safeguard customers‟ interests through mutual trust and

self-respect within the organization as well as with business partners by effecting continuous

improvement in operations and providing the requisite services.

• To assist State Electricity Boards/Power Utilities/State Governments, Rural Electric

Cooperatives and other loanees by providing technical guidance, consultancy services and

training facilities for formulation of economically and financially viable schemes and for

accelerating the growth of rural and urban India.

1.6.1 PERFORMANCE HIGHLIGHTS:-

7

8

1.7 CATEGORY OF SCHEMES FINANCED UNDER T&D

Table 1: Category of Schemes Financed Under T&D

S.No Category Purpose

1 Distribution scheme

(i) Project system Improvement:

P:SI

To strengthen and improve the sub

transmission and distribution system in the

designated area.

(ii) SI:Meters, Transformers, etc For procurement and installation of meters,

transformers etc.

(iii) P:SI (HVDS) For conversion of LVDS to HVDS

(iv) P:SI (APDRP) For counterpart funding of APDRP schemes

sanctioned by MoP

(v) Project Intensive

Electrification: P:IE

To cover intensive load development for

providing connections to rural consumers in

already electrified Villages.

(vi) Project Pumpsets: SPA:PE For energisation of pump sets.

2. Transmission schemes

Project system Improvement:

P:SI

For evacuation of power from new generating

Stations and to strengthen/improve the

existing transmission System in the designated

areas.

9

CHAPTER 2

2.1 REVIEW OF EXISTING LITERATURE

Brown et al (2006) state that Electric utilities are on a never ending quest to attain higher

levels of performance for increasingly lowers costs. Often times this leads to project requests

that far exceed budget and resource constraints. Many utilities have started to manage this

problem through well-defined project evaluation and selection processes. At a minimum,

these processes are able to rank project proposals within a given category with respect to

expected cost and expected benefit. More mature systems are able to: trade-off capital,

operations, inspection, and maintenance; look at marginal project value; trade-off risk versus

expected performance; and manage performance over multiple years. The most common

project selection approach is to rank all projects based on the ratio of benefit to cost. By

forcing all projects to be assigned a benefit and a cost, projects across departments and

functions can be directly compared. By ranking all projects based on the ratio of benefit to

cost, projects can be selected in order until budgets are exhausted. This presentation suggests

a new approach to project ranking that is designed for multiple performance targets. This

allows a utility to identify a large number of benefit measures and to set performance goals

related to each measure. Once metrics and targets are identified, the methodology identifies a

project portfolio that achieves all performance targets for the least possible cost. This

methodology has been implemented in an easy-to-use tool called AMPS (asset management

project selection), which allows scenarios and sensitivities to be quickly explored

Project Finance: Project financing is an innovative and timely financing technique that has

been used on many high-profile corporate projects, including infrastructural and power.

Employing a carefully engineered financing mix, it has long been used to fund large scale

natural resource projects, from pipelines and refineries to electric-generating facilities and

hydro-electric projects. Increasingly, project financing is emerging as the preferred

alternative to conventional methods of financing infrastructure and other large scale projects

worldwide.

Project finance is different from traditional forms of finance because the credit risk associated

with the borrower is not as important as in an ordinary loan transaction; what are most

10

important are the identification, analysis, allocation and management of every risk associated

with the project.

Risk identification and allocation is a key component of project finance. A project may be

subject to a number of technical, environmental, economic and political risks, particularly in

developing countries and emerging markets. Financial institutions and project sponsors may

conclude that the risks inherent in project development and operation are unacceptable

(unfinanced able). To cope with these risks, project sponsors in these industries (such as

power plants or railway lines) are generally completed by a number of specialist companies

operating in a contractual network with each other that allocates risk in a way that allows

financing to take place. The various patterns of implementation are sometimes referred to as

"project delivery methods." The financing of these projects must also be distributed among

multiple parties, so as to distribute the risk associated with the project while simultaneously

ensuring profits for each party involved.

Project Appraisal: It is an assessment of a project in terms of its economic, social

and financial viability. A lending financial institution makes an independent and objective

assessment of various aspects of an investment proposition. It is defined as taking a second

look critically and carefully at a project by a person who is in no way involved or connected

with its preparation. He is able to take independent, dispassionate and objective view of the

project in totality, along with its various components. There are some steps for Project

appraisal.

Management Appraisal: Management appraisal is related to the technical and

managerial competence, integrity, knowledge of the project, managerial competence

of the promoters etc. The promoters should have the knowledge and ability to plan,

implement and operate the entire project effectively. The past record of the promoters is

to be appraised to clarify their ability in handling the projects.

Technical Feasibility: Technical feasibility analysis is the systematic gathering and

analysis of the data pertaining to the technical inputs required and formation of

conclusion there from. The availability of the raw materials, power, sanitary and

sewerage services, transportation facility, skilled man power, engineering facilities,

maintenance, local people etc are coming under technical analysis. This feasibility

analysis is very important since its significance lies in planning the exercises,

11

documentation process, and risk minimization process and to get approval.

Financial feasibility: One of the very important factors that a project team should

meticulously prepare is the financial viability of the entire project. This involves the

preparation of cost estimates, means of financing, financial institutions, financial

projections, break-even point, ratio analysis etc. The cost of project includes the land

and sight development, building, plant and machinery, technical know-how fees, pre-

operative expenses, contingency expenses etc. The means of finance includes the

share capital, term loan, special capital assistance, investment subsidy, margin money

loan etc. The financial projections include the profitability estimates, cash flow and

projected balance sheet. The ratio analysis will be made on debt equity ratio and

current ratio.

Commercial Appraisal: In the commercial appraisal many factors are coming. The

scope of the project in market or the beneficiaries, customer friendly process and

preferences, future demand of the supply, effectiveness of the selling arrangement,

latest information availability an all areas, government control measures, etc. The

appraisal involves the assessment of the current market scenario, which enables the

project to get adequate demand. Estimation, distribution and advertisement scenario

also to be here considered into.

Economic Appraisal: How far the project contributes to the development of the

sector; industrial development, social development, maximizing the growth of

employment, etc. are kept in view while evaluating the economic feasibility of the

project.

Environmental Analysis: Environmental appraisal concerns with the impact of

environment on the project. The factors include the water, air, land, sound,

geographical location etc.

ANALYSIS

Offering credit is an operation fraught with risk. Before offering credit to an organization, its

financial health must be analyzed. Credit should be disbursed only after ascertaining

satisfactory financial performance. Based on the financial health of an organization, REC

assigns credit ratings. These credit ratings are used to fix the interest rate, exposure limit and

security criteria.”

12

2.2 TRANSMISSION POLICIES IN INDIA

GUIDING PRINCIPLES FOR POWER SYSTEM IMPROVEMENT (P: SI)

SCHEMES

2.2.1 THE GUIDELINES

These guidelines are to help in formulation, appraisal, financing and disbursal of loans under

the P: SI category of schemes (of state and central sector borrowers and CPSUs) aimed at

system improvement of transmission, sub transmission and distribution systems, and

supersedes all guidelines issued earlier in this regard.

2.2.2 OBJECTIVES OF THE SCHEMES

The main stress of the schemes should be on:

i) Reduction in technical and commercial losses in the transmission, sub transmission and

distribution systems.

ii) Providing adequate system support for load development in the project area for the next

five years.

(iii) Providing the required infrastructure (lines/sub stations etc.) for power evacuation,

transmission, sub transmission and distribution.

iii) Improving the voltage regulation so as to bring it within the permissible limit.

iv) Improving the quality and reliability of power supply.

v) Improving the power factor in sub-transmission and distribution systems so as to optimize

the utilization of available system capacities.

vi) Introduction of innovative technology such as computerization, IT related projects, load

dispatch, SCADA, communication, GIS, R&D etc.

vii) Energy Audit.

2.2.3 SCHEME AREA

The scheme area shall normally be minimum of a district or tehsil or Electrical Division for

sub transmission and distribution schemes and a circle for transmission schemes. However, in

case it is not possible to follow the aforesaid stipulations, other schemes may be considered

on the specific merits of the case.

13

2.2.4 SCOPE OF WORKS

The project shall cater primarily to the needs of the transmission, sub-transmission and

Distribution systems of the scheme area for the purpose of system improvement as well as for

meeting the needs of system inadequacies covering all or part of the following need-based

works:

i. Construction of new sub-stations at all voltage levels in transmission, sub-transmission

and distribution system along with its associated EHT/HT/LT lines/feeders.

ii. Augmentation of existing sub-stations and lines at all voltage levels in transmission,

subtransmission and distribution system.

iii. Conversion of LVDS to HVDS.

iv. Conversion of three phase system to single phase system.

v. Renovation & Modernisation of the existing HT and LT lines including LVDS.

vi. Regrouping of loads, bifurcation, alignment and augmentation of existing heavily

loaded LT feeders and installation of energy efficient distribution transformers.

vii. Provision of reliable and tamper proof meters at Consumers' premises.

viii. Provision of metering and reliable protection on LT side of distribution transformers.

ix. Provision of inter utility meters.

x. Shunt compensation in LT system.

xi. Bifurcation, alignment and augmentation of existing heavily loaded 11 KV feeders.

xii. Provision of 11 KV automatically Switched capacitors directly on lines.

xiii. Provision of 11 KV voltage boosters, sectionalisers etc.

xiv. Shunt compensation at various substations in sub-transmission system, by installation

of HT capacitor banks.

xv. Provision of metering equipment on all incoming and outgoing feeders in the

existing/ proposed power Sub-stations.

xvi. Provision of service connections (utility share), as also its modernization.

xvii. Provision of controlling equipment, such as, circuit breakers, isolators etc. for the

existing feeders and power transformers wherever necessary.

xviii. Communication and automation equipment which includes computerization, IT

Related projects, load dispatch, SCADA, communication, GIS, R&D etc.

xix. Metering and other Equipment for Energy audit.

xx. Replacement of worn out sub-station equipment.

xxi. Study, evaluation and consultancy relating to aforesaid scope of works at S.No (i) -

14

(xx), if not specifically covered under the concerned project.

xxii. Preparation of DPR (upto 2% of the cost of the scheme).

2.2.5 FORMAT OF THE SCHEME

The schemes will be submitted by the borrower as per the prescribed structure of the project

report. Also, for transmission schemes, where the utilities are running load flow studies, the

same may be verified and accepted by the CPM, and values as derived from load flow studies

may be indicated in the appraisal note and also used for calculating the required scheme

parameters, without necessarily using the furnished formats. The copies of load flow studies

may be furnished.

2.2.6 ESTIMATION OF LOAD DEMAND

The load growth for the scheme area shall be considered for the next 5 years (referred to as

horizon year) based on either of the following:

(i) Load growth for the utility as per the latest tariff order; or

(ii) Load growth for the state as per the latest available EPS report of CEA.

However, if the projections in the scheme area are substantially higher due to some special

requirements, the same will be clearly spelt out and explained for consideration with proper

justification by the power utility/SEB and recommended by the CPM as a part of the

appraisal report.

The calculation of load growth as above may not be compulsory/applicable in case of certain

transmission schemes where erection of sub stations and lines for power evacuation are

involved and also for certain special types of distribution schemes like HVDS, feeder

separation etc.

2.2.7 ENTITY APPRAISAL

For appraising the capability of the borrower, the latest ratings as specified by the entity

appraisal division of REC may be followed.

2.2.8 EXTENT OF EXPOSURE OF UTILITY

At the time of project appraisal, the CPM shall ensure that the balance credit exposure for the

utility is available.

15

2.2.9 COST DATA

The schemes will be formulated by the utilities based on their latest approved schedule of

rates, and certified by the CPMs that they are as per the latest schedule of rates. If there is a

variation in the cost adopted in the scheme compared to the schedule of rates, the CPM

should give justification for the same. Where the utilities have not formulated the latest

schedule of rates, the cost as per the latest purchase orders can be adopted by the CPMs.

Alternatively, in such cases, the old approved schedule of rates with permitted escalation as

per utility‟s norms may be used. In any case, the PO should invariably give its

recommendations in the processing note regarding the acceptability of the cost estimates

adopted by the power utility.

2.2.10 PROJECT IMPLEMENTATION

a) Project Period

Execution of the scheme shall be completed within the scheduled operating period agreed at

the time of the sanction (normally 2 years for Distribution and 3 years for transmission

schemes), with a grace period of one year (at the discretion of REC). However, the scheme

implementation period may be extended beyond the scheduled operating period agreed at the

time of the sanction, by the competent authority.

b) Execution of the project

The power utility in its project report should clearly indicate whether the scheme would be

executed departmentally or otherwise.

Normally, monitoring and quality assurance of the projects (with loan amount more than

Rs.50 crores) during its implementation should form an integral part of the project and this

shall be got done from a third party/independent agency. The cost of the same shall form part

of the loan assistance from REC.

Evaluation of the project (as applicable) after completion shall be got done by the borrower

from a third party/independent agency, the cost of which may also form part of loan

assistance from REC.

16

2.2.11 DEVIATION PROPOSALS

a) In the event there are some deviations in physical activities (as compared to the sanctioned

project) these will be considered on submission of a deviation proposal by the SEB, during

the project period, subject to the following conditions:

i) The deviations made shall be technically justified.

ii) The Financial commitment of REC is limited to the original loan amount including cost

escalation, if any (except for cases covered under 11b and 12 below).

iii) The scheme continues to meet the viability criteria as per stipulated norms (with the

deviations) despite changes in loss savings, sale of energy and overall cost of works, if any.

iv) The submission of the deviation proposal shall precede the submission of the last

reimbursement claim against the scheme by the SEB and approved by Competent Authority

of REC before release of this amount. This deviation proposal shall be forwarded by the

competent authority of the SEB, justifying the change with details of (i), (ii) and (iii) above.

b) However, enhancement in the loan amount due to change in scope of works may be

considered up to 20% of the original sanctioned loan amount subject to the revised proposal

meeting the prescribed technical and financial viability criteria.

2.2.12 PROJECT FINANCING

a) Provision for cost-escalation up to a maximum of 20% of the project cost (due to

unexpected price rise) will be permitted if desired by the borrower. This will hold good for

projects being executed departmentally or on turnkey or on partial turnkey mode. However,

the viability shall be tested on the capital base including 20% cost escalation.

b) Wherever the borrowers have not sought for such cost escalation towards price rise in the

original sanction, but due to unexpected price rise, the actual cost becomes higher than the

sanctioned amount, the borrower will have the option to revise the project cost on the basis of

actual expenditure incurred, subject to a ceiling of 20% of the original loan amount and seek

the approval of the corporation to the revised project cost, giving proper financial

justification.

c) Notwithstanding the above, in case of schemes to be executed on turnkey basis through

competitive bidding, the overall cost of schemes eligible for financing by REC shall be the

cost approved by the competent authority of the utility/Regulator after award of work. In such

cases, viability as applicable, as per guidelines, would be rechecked.

17

2.2.13 ENHANCEMENT OF LOAN AMOUNT

Enhancement of loan amount on account of both change in scope of works as per para 11 (b)

and price rise as per para 12 (b) shall also be considered, but subject to the total ceiling of

20% of original sanctioned loan amount.

2.2.14 INTEREST DURING CONSTRUCTION (IDC)

The Corporation may also consider financing of interest during construction, for schemes

with loan amount more than Rs. 100 crores, which are sanctioned for an implementation

period of more than 2 years.

2.2.15 DISBURSAL OF LOAN

a) The first installment of the loan amount will be released on execution of the loan

documents and compliance of terms and conditions stipulated in the sanction. The release of

first instalment would be regulated as follows:

i) If the loan amount is more than Rs.100 crore, the scheme may be considered as high value

schemes, and the 1st installment limited to 10% of the loan amount.

ii) In case of schemes where loan amount is more than Rs. 50 crore, but is up to Rs.100 crore,

the 1st installment is limited to 15% of the loan amount.

iii) For schemes having a loan amount of up to Rs. 50 crore, the 1st installment may be

considered up to 20% of the loan amount.

iv) Further in case of turn key projects where generally the power utilities provide advance to

contractors, REC may also consider to provide equivalent advance towards 1st installment to

meet this requirement, if sought by the utility, subject to ceiling of such advance up to 15% of

the loan amount.

v) The advance loan as above would be provided only where the borrower has provided

adequate acceptable upfront security to REC.

b) The 2nd and subsequent installments of loan will be released on pro rata reimbursement

basis depending upon the progress of works indicated in the claims preferred by the borrower

after pro rata adjustment of initial advance. However, release of loan installments beyond

18

50% of loan amount of the scheme shall be preceded by detailed monitoring in accordance

with monitoring guidelines.

c) The final 10% of the loan will be released after final field monitoring, evaluation as

applicable and other terms and conditions of sanction of the scheme.

2.2.16 FINANCIAL VIABILITY

i) The scheme shall be considered viable if it yields Financial Internal Rate of Return (FIRR)

of at least 12% on the investment made under the scheme. The viability calculations shall

normally be based on the benefits at the Horizon year on account of loss savings as well as

additional sale of energy. However, other quantifiable benefits as applicable could also be

considered, with suitable justifications and calculations, wherever applicable/available. The

capital base for calculation is the cost of the scheme including cost escalation charges, if any.

ii) However, for schemes for introduction of innovative technology such as computerization,

IT related projects, load dispatch, SCADA, communication, GIS, R&D, inter utility meters,

DT meters etc. and for schemes relating to energy audit, study, evaluation, consultancy etc.

the IRR is not required to be worked out.

iii) Further, in case of transmission schemes, the IRR is not required to be worked out,

provided the schemes are approved/posed to SERC. In exceptional cases, schemes other than

defined above could be considered on merits of the specific case. In such cases, the Utility

shall undertake that these schemes would be included in the next year‟s approval by SERC.

At the time of sanctioning of a transmission scheme, schemes already sanctioned including

by other FIs/utility‟s own resources would also be taken cognizance of.

19

2.3 STEPS FOR APPROVAL PROCESS OF T&D SCHEME

Receipt of

Scheme at PO

Evaluation and

Processing of

scheme at PO

Receipt of scheme

at CO complete in

all respect

Processing of

scheme at CO for

Approval

If loan amount is

less than 20 Cr

Approval by screening

committee

Financial

concurrence

If loan amount is

less than 100 Cr

If loan amount is

less than 500 Cr

If loan amount is

less than 150 Cr

Approval: By CMD

Recommendation

of CMD

Recommendation

of CMD

Approval: By

BOD

Approval by Loan

Committee

Approval by Executive

Committee

Recommendation

of CMD

Financial

Concurrence

Screening

Committee

YES

NO

YES

NO

YES

NO NO

YES

NO NO

20

STEP 1: Receipt of scheme at PO

STEP 2: Evaluation & Processing of Scheme at PO

STEP 3: Receipt of Scheme at CO complete in all respect

STEP 4: Processing of Scheme at CO for approval

STEP 5: If loan amount is less than 20 Crore, Then Financial Concurrence and approval by

the Screening Committee

STEP 6: If Loan amount is more than 20 Crore, then Screening Committee and Financial

Concurrence

STEP 7: If loan amount is less than 100 Crore then approval by the CMD

STEP 8: If loan amount is less than 150 Crore, then recommendation of CMD and then

Approval by the Executive Committee

STEP 9: If loan amount is less than 500 Crore, then Recommendation of CMD and approval

by loan Committee

STEP 10: If loan amount is greater than 500 Crore, then recommendation of CMD and

approval by BOD.

The PO i.e. Project office plays a very vital role in the working of REC. All the details about

the Schemes are collected by PO. PO people are in direct contact with the Utilities or the

borrowers. The borrower first approaches the PO and then the Scheme is appraised by the PO

people.

PO people are also responsible for collecting the needed data and documents as per the REC

formats and guidelines. After the final appraisal by the PO people the Scheme is send to

corporate office (CO) for final technical and financial appraisal.

21

2.4 RESEARCH METHEDOLOGY

Review of project documents:

Review of the project documents will be helpful for understanding of the process of project

appraisal, risk associated with the financing of projects, economic condition of the concern

utility. This documents includes DPR of the scheme arrived for sanction, Appraisal

guidelines of REC, policy guidelines of CERC and presentations by different utilities, bid and

tender documents of transmission project etc.

Review of past experience:

Risk involved in financing private transmission project is more than the central or the state

utility. Past experiences might be helpful in assessing the risks, calculating the base score for the

utility. The projections of future financial performance are also evaluated with past financial

performance.

Project Appraisal: To evaluate the project rating and conducting the feasibility report of a

project based on the DPR/information memorandum/application form and other related

materials submitted by the borrower.

Assesses the capital needs of the business project and how these needs will be met.

Calculation of DSCR, IRR and sensitivity analysis.

Calculating the cost of generation and relevance.

Entity Appraisal: To assess the financial health of organizations that approach PFC for credit

for power projects. This would entail undertaking of the following procedures:

Analysis of past and present financial statements Examination of Profitability statements

Integrated Rating: Financial feasibility of the project is checked by the calculation of IRR and

DSCR, various cost estimates, tariff calculation, Interest during Construction, working capital

requirement, levellised tariff, etc. On the basis of above data, sensitivity analysis is done at

different input conditions. With the help of these data project is rated and then composite with

entity rating to reach at Integrated project rating.

22

CHAPTER 3

3.1 INTRODUCTION

A) Entity Appraisal Process for Private Transmission Project

The Entity appraisal process for private developers/utilities will be done in two stages,

namely:-

A.1. Preliminary Appraisal

A.2. Detailed Appraisal

A.1. Preliminary Appraisal

The evaluation process should be undertaken immediately on receipt of the loan application

form in the prescribed formats duly filled in with supporting attachments and documentation.

A.1.1 Precondition for Evaluation

a) The promoters prior to approaching REC should have identified 50% of the equity to be

eligible for preliminary evaluation. The name of the equity contributor should be clearly

mentioned and identified in the application. A letter expressing interest in contributing

interest in contributing equity to the project must be obtained from the identified equity

contributors.

b) Basic information on the promoters and their firm should be filled in as per the loan

application format. All the promoters who are eligible (contributing more than 10% of equity)

would undergo preliminary evaluation.

A.1.2 Evaluation Process

The preliminary evaluation involves the Business Analysis, Financial Analysis and the

Management Analysis of the promoters. For each of the parameters and sub-parameters

certain weightage have been assigned. Both quantitative and qualitative parameter has been

identified for assigning a score to each parameter. The project clears the preliminary

evaluation stage only if it scores the cut -off grade

Final score = (Business Analysis score) + (Financial Analysis score) + (Management

Analysis score)

A.1.3 Scoring Process Scoring is being done for promoters both on quantitative factors and qualitative factors. The

relevant score is then considered for the evaluation. The appraising officer needs to assign the

score ranging from 1 to 4.The business analysis score, financial analysis score and

management analysis score of each of the promoters is weighted by their equity contribution

for a combined entity score.

The default by the promoters to any of the financial institutions has been considered as an

overriding criterion for scoring. The default should be analysed in terms of the level of the

default, factors leading to the default and the number of times this has occurred. High

incidence of default or the current default would bring down the score of the promoter to one.

23

However, if the company has not been in default at present but showed tendencies of default

in the past, then the promoter score should be notched down by 33%.

The quality of accounting disclosing companies transactions in transparent and manner shall

also be the subject of the evaluation by appraising officer. The poor accounting quality shall

notch down the overall scored by 15%.

The overall score reduction in case of poor accounting quality and the default is applicable

both for preliminary as well as the detailed entity Appraisal.

Credit Appraisal Framework

A.1.4 Appraisal Process-

A.1.4.1 Business Analysis (Weightage 10%)

The business analysis evaluates the performance of the current business of the promoters. The

analysis involves evaluation of the market position of the promoters and its market

reputation.

Table 2: Business Analysis

Factor to be considered Indicative weights within the

group

Method of evaluation

Market Analysis 100% Quantitative

24

a) Market Analysis

The market share of the company can be evaluated based on the ratio of the turnover

of the promoting company/divided by the turnover of the market leader in the

business.

Table 3: Market Analysis

Ratio to be considered Method of evaluation

Turnover of the company/turnover of

the industry leader in the business

Quantitative analysis

The ratio so obtained is compared against the score table.

Table 4: Score Table

Market Position Indicative score

>0% but <=10% 1

>10% but <=30% 2

>30% but <=50% 3

Greater than 50% 4

A.1.4.2 Financial Analysis (Weightage 70%)

The analysis of financial capability of the borrower is based on the strength of the

existing business of the borrower. The evaluation further considers the level of

support, which could be available for the project appraisal project. The past five-year

results from the audited annual reports of the company are considered for the purpose

of the analysis under this section.

Table 5: Financial Capability

Factor to be considered Indicative weights Methods of evaluation

a) Review of the past

financial position

20%

Quantitative analysis

b) Financial flexibility 80%

The parameters that profile the strength of the business are detailed below.

25

A.1.4.2.1 Review of past Financial Position

The profitable operation of the business is an important criteria for lenders to draw

comfort that the company would be in a position to fund its equity contribution in the

project.

Table 6: Past Financial Position

Ratio to be considered Indicative Weights Method of Evaluation

Return on capital employed 20%

Quantitative Analysis

Operating margin 20%

Debt service coverage ratio 20%

Total Debt to total Net worth 20%

Cash generation from business 20%

A.1.4.2.2 Basis of the award of the score has the score has been detailed below

a) Return on capital employed (ROCE): the ratio is computed for at least last three

years and average of the same is considered for evaluation. The ratio can be

computed as:

ROCE = profit before interest and tax (PBIT) / capital employed

Where,

Capital employed= (equity capital + Reserves + short term debt + Long term debt-

Revaluation reserves-capital works in progress)

ROCE is to be calculated as average of the last three years figure. In case the ratio

is lower than the one for the preceding year then the latest ROCE should be used

for calculation instead of the average. The ration obtained the score table.

Table 7: ROCE

ROCE range Inductive score

<=5% 0

>5% but <=9% 1.00

>5% but <=9% 1.50

>5% but <=9% 2.50

26

>5% but <=9% 3.00

>5% but <=9% 3.50

Greater than 17% 4.00

b) Operating Margin(OM):

The ratio should be computed for the at least last three years and an average of the

same is considered for evaluation. The ratio can be computed as:

= operating profit before depreciation, interest and taxes (OPBDIT) / operating

income

Income and profit should be considered from the main operation of the company,

income from other sources, extra ordinary income and non-operating income

should be excluded.

In case the ratio is lower than one for the preceding year then the latest operating

margin (OM) should be used for calculation instead of the average .The ratio so

obtained is compared against the score table.

Table 8: Operating Margin

OM range Indicative score

<=0% 0

>0% but <=5% 1.50

>5% but <=10% 2.00

>10% but <=15% 2.50

>15% but <=20% 3.00

>20% but <=25% 3.50

Greater than 25% 4.00

c) Debt Service coverage Ratio (DSCR): The ratio should be computed only for the

latest year. The ratio can be computed as:

=(PBDIT-Tax)/(repayment due to long term loan + interest on long term and short

term loan including interest capitalized)

The DSCR so obtained is compared against the score table.

27

Table 9: DSCR

DSCR range Indicative score

<=1.0 0

>1.0 but <=1.1 1

>1.1 but <=1.2 1.50

>1.2 but <=1.3 2.00

>1.3 but <=1.4 2.5

>1.4 but <=1.5 3.00

>1.5but<=1.75 3.25

>1.75but<=2.0 3.50

Greater than 25% 4.00

d) Total Debt to Total Net Worth: - The degree of leverage of the current business

would indicate the ability of the borrower in raising funds for the purpose of

equity investment in the proposed project. The above would also influence the

borrower‟s ability to service his current and as well as future debt obligations. The

ratio should be computed only for the latest year. The ratio can be computed as:

= long term loan + other short term loan + WC loan from banks)/ (Equity share

capital+ reserves – Revaluation reserves – intangible assets)

The ratio so obtained is compared against the score table as indicated below.

Table 10: Total Debt to Net Worth

Total Debt to Total Net Worth range Indicative score

0-0.5 4.0

>0.5 but <=1.0 3.0

>1.0but <=1.5 2.5

>1.5 but <=2.0 2.0

>2.0 but <=2.5 1.5

Greater than 2.0 1.0

28

Less than 0 0

`

e) Cash Generation from business:-

In many businesses, profitability may not necessarily indicate a strong cash

position for the business i.e. a profitable company may not necessarily generate

the positive cash flow from the business. This parameter analyses whether the

cash generation in the existing business has been positive or negative in the past

years and thus serves as an indication of the promoter‟s capability in cash flow

management. The ratio should be computed only for the latest year.

= (cash flow from operation) / (long term loans + other short term loans + WC

loans from bankers)

Where,

Cash flow from operation= PAT+ Depreciation + non-cash expenses-increase in

working capital. The ratio so obtained is compared the score table as indicated

below.

Table 11: Cash Flow

CFO/Debt range Indicative score

Less than 0 1.0

>0 but <=0.1 1.5

>0.1 but <=0.2 2.0

>0.2 but <=0.3 2.5

>0.3but <=0.4 3.0

>0.4but <=0.5 3.5

Greater than 0.5 4.0

A.1.4.2.3 Financial flexibility

Financial flexibility evaluates the ability of the promoters to financially manage

the project. The key factors to be evaluated in financial flexibility are:

29

Table 12: Financial Flexibility

Ratio to be considered Indicative

Weights

Method of

evaluation

Equity funding potential 60%

Quantitative

analysis

Bridge finance ability 7.5%

Track records of the funds

raised

15%

Total Debt to Total Networth 10%

Aggregate project cost handled. 7.5%

a) Equity Funding potential: the promoting company can contribute equity to the

project by either raising debt on its books or raising equity or through cash surpluses

in the books. The equity funding potential is the summation of following.

Ability of the company to raise debt upto certain debt/equity ratio of ( 1.5:1.0 ) and

debt service coverage ratio of 1.5.(overall ability is limited by the lower of the two

ratios)

Ability to raise equity from the market by diluting the equity of the promoting

company upto 10% of its average market capitalization. The average market

capitalization is reckoned by the average of the last one year.

Ability to use marketable securities to raise equity for the project.

Any other source of infusing equity into the project.

The summation of the above has to be divided by the equity committed by the particular

promoter. The ratio so obtained is compared against the score table as indicated below.

Table 13: Equity Funding Potential

Equity infusion potential Indicative score

<=0 1

>0.00 but <=0.50 2

>0.50 but <=1.00 3

greater than 1.00 4

30

b) Bridge finance ability:

The borrower / promoters may have to arrange for bridge finance to overcome temporary

shortfall in funding for the project. These shortfalls may arise if disbursements from financial

institutions are not forthcoming as per the expected schedule or in case of the delay in tying

up of the debt funds. To evaluate the bridge finance ability of the promoters, the following

factor is compared with the project cost.

Quarterly cash surpluses= (annual cash flow from operation + Annual marketable

securities)/4

Where,

Annual cash flow from operation=PAT+ depreciation + non-cash expenses-increase in

working capital investments

The marketable securities considered for the equity infusion are not considered here.

Ratio is calculated as follows to judge the bridge finance ability.

Ratio=Quarterly cash surplus / total project cot

This ratio is compared with the indicative ratio in the following table and the corresponding

score is assigned.

c) Track record of the funds raised:

This parameter examines the experience of borrower / promoters in respect of

raising resources from the market. The aggregate funds raised by the promoting

group in the last ten years as a promotion of the project cost is benchmarked

against the scores tabulated below.

Table 14: Raising of Fund

Fund raising track record Indicative score

Less than 0.60 1.0

>0.60 but <=1.1 1.5

>1.1 but <=1.6 2.0

>1.6 but <=2.1 2.5

>2.1 but <=2.6 3.0

> 2.6 but <=3.1 3.5

Greater than 3.1 4.0

31

d) Aggregate project cost:

This parameter evaluates the ability of the project promoter to manage new projects. The

factor is scored by computing the aggregate cost of the project implemented by the promoting

group in the last ten years as a proportion of the cost of present project. The ratio so obtained

is compared against the score table as indicated below.

Table 15: Project Cost & Indicating Score

Aggregate project cost Indicative score

Less than 0.3 1.0

>0.3 but <=0.8 1.5

>0.8 but <=1.3 2.0

>1.3 but <=1.8 2.5

>1.8 but <=2.3 3.0

> 2.3 but <=2.8 3.5

Greater than 2.8 4.0

A.1.4.3 Management Analysis framework (Weightage 20%)

In this section the managerial competence of the promoters of the in managing the company

is being evaluated. Some of the key factors that would be evaluated comprise of:

Table 16: Management Analysis

Factor to be considered Indicative

weights

Methods of

evaluation

Organizational Experience 30%

Qualitative

judgement

Experience of key personnel 20%

Equipment supplier, EPC contractor

and project management Experience

30%

Project preparedness of the

promoters

20%

The score against each of these variables need to be given in a range of 1 to 4.

32

a) Organisational Experience: The experience of the borrower in the power sector needs to

be evaluated in terms of the organisation experience and the experience of the key personnel.

The sector experience of the borrower / promoters in all aspects of the power generation

business have to be analysed to evaluate the quality and relevance of their experience.

b) Experience of key personnel: the power sector experience of the personnel of the

borrower/promoters should be analysed under this section. Further it need to be gauged

whether the borrower is adequately geared up to manage the proposed power project.

c) Equipment Supplier, EPC contractor and project Management Experience:

Equipment Supplier, EPC contractor and project Management Experience of the borrower

/promoter should also be evaluated. Past experience in these aspects in increased comfort

level in executing the proposed project on schedule and within the budgeted cost. The size of

the projects executed and the industry to which these projects belong have been used to

analyse whether the borrower /promoter have the experience of executing similar capital

intensive projects and also managing projects requiring a substantial number of clearances.

d) Project Preparedness of the Promoter: promoters who have done the ground work for

execution of the project i.e. seeking requisite clearances and other project development

aspects should be awarded higher weightage. This factor being qualitative should be scored

on a scale of 1 to 4.

A.1.5 FINAL ANALYSIS FOR PRELIMINARY STAGE

Table 17: Final Analysis for Preliminary Stage

Average score

obtained Grade Comments

Possibility of

talking up for

detailed

appraisal

3.6 and Above

Grade –I

The fundamentally strong ability of the

promoters to set up the new projects Is

unlikely to be adversely affected by changes

in circumstances

Yes

>3.0=3.5 Adverse business conditions are unlikely to

affect the promoter‟s ability to set up the new

projects.

Yes

>2.5=3.0 Promoters “ability to set up projects is less

likely to be adversely affected by changes in

circumstances than for lower score.

Yes

>2.0=2.5 Changes in circumstances are more likely to

lead to weakened ability of promoters to set

up the project than for higher grades.

Yes

33

>1.5=2.0 Grade-II While such promoters are less susceptible to

default in setting up of the project than those

in lower grades, uncertainties faced by them

could adversely affect their ability to set-up

the project.

Only if the Risk

Appetite of the

organisation

allows

Below 1.5 Grade-III Adverse business or economic conditions and

poor capabilities are likely to lead to

promoters‟ lack of ability to set up the project.

Should not be

funded

A.1.6 Decisions points based on the results

Based on the score arrived at from the above analysis decision can be considered.

Entity falling in grade-I: automatically considered for the detailed evaluation stage

subject to analysis in the technical and financial stage.

Entity falling in grade in grade –II: to be referred to the management at REC for their

qualitative inputs subjects to specific comments of the appraising officer, regarding

the area of the low score. The project may be taken up for the detailed appraisal only

if the risk appetite of the organisation allows for such funding.

Entity falling in grade –III: should not to be considered as investment grade and

should be returned back with specific comments of the apprising officer.

A.2. DETAILED APPRAISAL

The process of detailed evaluation should be undertaken once the project has satisfied the

necessary pre-conditions and the furnished all the information to the borrower.

A.2.1 PRECONDITION FOR APPRAISAL:

The promoter prior to approaching REC for detailed appraisal should have identified 70% of

the equity out of which 50% of the equity should be fully tied up. The tied –up equity means

the firm written commitment from the investors and identified equity means the Expression

of the interest (EOI) by the parties to invest in the project.in case at least 50% is tied up and

the balance equity is shown to be invested by strategic investors the analysis will be carried

out by scaling up the stake of the promoters holding 50% shares in equity to 70% for the

analysis.

34

CREDIT APPRAISAL FRAMEWORK

A.2.2 EVALUATION PROCESS

The detailed analysis is done under the same heads as in the case of preliminary analysis. The

appraising officer can revise the score on the parameters in case of any new information or

significant changes in the assessment of promoters on the factors being evaluated. Under the

financial analysis another parameter for future financials comprises of

a) Analysis of future project of the promoting company

b) In case the promoter has a foreign player its individual rating by an international

rating agency can be taken as a surrogate for entity evaluation.

A.2.3 SCORING SYSTEM

The scoring approach in case of detailed evaluation is similar to the approach considered

under the preliminary evaluation stage.

A.2.4 APPRAISAL PROCESS

A.2.4.1 Business analysis (weightage 10%)

There is slight change to the parameters evaluated under the business evaluation stage. These

are as follows:

35

Table 18: Business Analysis

Factor to be considered Indicative weight

within the Group

Methods of evaluation

Market analysis 50% Qualitative judgement

Industry analysis 50%

The market analysis will be carried out in the same way as in preliminary evaluation. The

industry Analysis will be based on the risk perception of the industry in which the promoting

company is operating.

A.2.4.2Financial Analysis (Weightage 70%)

In detailed evaluation stage the projections of the future financial performance of the

promoter is considered for evaluation. The projections for the next two years are considered.

Table 19: Financial Analysis

Factor to be considered Indicative weights

Methods of evaluation

Review of Past Financial

position

50%

Quantitative Analysis Review of future financial

position

15%

Financial Flexibility 35%

Some of the additional factors that need to be evaluated are discussed below.

a) Review of future financial position

The same financial parameters, which were used for projecting the past financial position, are

used for evaluating the future performance of the promoting companies.

b) Review of financial Flexibility

Apart from the parameters already analysed under the preliminary analysis stage, the bridge

finance ability of the promoters needs to evaluate the future quarterly cash flows for the next

year instead of the past quarterly cash surpluses, as in the preliminary evaluation.

36

A.2.4.3 Management Analysis (Weightage 20%)

In the section the management competence of the promoters is reviewed by the appraising

officer based on the factors detailed below.

Table 20: Management Analysis

Factor to be considered Indicative

weights

Method of evaluation

a) organizational Experience 20%

Qualitative judgement

b) Experience of key personnel 30%

c) equipment supplier,EPC contractor

and Project Management Experience

30%

d) project Preparedness of the

Promoters

20%

A.2.5 Final Analysis for detailed evaluation stage

Table 21: Final Analysis for Detailed Evaluation

Average

score

obtained

Grade Comments

3.6 and

Above

Grade –I The fundamentally strong ability of the promoters to set up the new

projects Is unlikely to be adversely affected by changes in

circumstances.

>3.0=3.5 Grade –

II

Adverse business conditions are unlikely to affect the promoter‟s

ability to set up the new projects.

>2.5=3.0 Grade –

III

Promoter‟s ability to set up projects is less likely to be adversely

affected by changes in circumstances than for lower score.

>2.0=2.5 Grade –

IV

Changes in circumstances are more likely to lead to weakened ability

of promoters to set up the project than for higher grades.

>1.5=2.0 Grade –

V

While such promoters are less susceptible to default in setting up of the

project than those in lower grades, uncertainties faced by them could

adversely affect their ability to set-up the project.

Below 1.5 Grade –

VI

Adverse business or economic conditions and poor capabilities are

likely to lead to promoters‟ lack of ability to set up the project.

37

B) PROJECT APPRAISAL

B.1 PROJECT DETAILS

B.1.1 PROJECT PROFILE AND TECHNLOGY

B.1.1.1 PROJECT OBJECTIVES AND SCOPE

I. Objectives

ABC Ltd is setting up the Super Thermal Power Project at location A for an ultimate capacity

of 2000 MW with 2 X 600 MW in the first phase. STPP is to be located in western region.

The STPP has obtained all permits and clearances and part of the debt finance from REC has

also been tied up. The financial closure of the projects is also completed.

Approx 60% of the capacity from STPP (Approx. 700 MW in phase – I ) would be sold to

XYZ Steel Limited and balance power (Approx. 400 MW) shall be sold to state in which

plant is to be set up under an MOU with state government for setting-up the STPP.

II. Scope of work

The works covered in the project are as under:

Table 22: Transmission Line

Sl. No. Transmission Line Approx line

length (Kms)

(i) 400kV D/c (QUAD conductor) Transmission Line from location

A to location B sub-station

315

(ii) LILO of existing 400kV S/c transmission line C-D at location A 20

(iii) 400kV D/c (Twin conductor) transmission line from switchyard

at location E to Location F

97

38

Table 23: Sub-station

(iv) 3x500 MVA Transformer, 400/220kV Substation at location F

(v) 2x50 MVAR line reactor at location B‟s pooling sub-station

(vi) 2x50 MVAR line reactor at location A

(vii) 1x80 MVAR, 420 kV switchable bus reactor at location A along with its

associated 400 kV bay

(viii) 2 Nos. of 400 kV line bays at location B‟s pooling sub-station

(ix) 2 Nos. of 400 kV line bays at location E‟s switchyard

(x) 4 Nos. of 400 kV line bays at location A TPS

B.1.2 Technical Details

400 kV Double circuit lines from A to B, shall be constructed with ACSR Quad Moose

conductor and LILO, E- F line shall be constructed with ACSR TWIN MOOSE conductor.

Table 24: Technical Details

Item 400 kV D/C from A-B

lines

400 kV D/C LILO and

E-F Line

Conductor type ACSR Moose ACSR Moose

Conductor per phase 4 (Quad Bundle) 2 (Twin bundle)

Conductor size (mm) 54/3.53 Aluminium

+7/3.53 Steel

54/3.53 Aluminium

+7/3.53 Steel

Overall conductor diameter (mm) 31.77 31.77

Earthwire (mm) Galvanised steel 7/3.66 Galvanised steel 7/3.66

Overall EW diameter (mm) 10.98 10.98

EPC – TL PACKAGE

The scope of work as envisaged under Scheme – A and Scheme – B.

39

Scheme – A consists of:

Part-1: 400kV Double Circuit Transmission Line from 2 x 600 MW location A TPP to B

with Quadruple Moose ACSR Power Conductor –Approx. - 315km,

It has been decided to change configuration of the line from triple to quad to take care of

future expansion and to optimise the ROW. PQR LTD already been taken the approval from

PGCIL for changing of conductor configuration from Triple to Quad (Annexure –A)

And

Part-2: 400kV Double Circuit LILO of 400kV S/C line from C to D at S village to location A

TPP with twin moose ACSR conductor- Approx. - 20km.

Scheme - B consists of:

400kV Double Circuit Transmission Line from E to 400/220 KV Substation of PQR Ltd,

with Twin Moose ACSR Power Conductor – Approx. - 97km

SCOPE OF WORK –

The scope of work covers performance of transmission line detailed route survey and check

survey along the specified alignment, geotechnical investigation, profiling and tower

spotting, identifying types of towers, tower optimization, estimation of line material and

designing of normal and special towers and foundations, proto testing, fabrication &

galvanizing of towers & tower hardware and supply of all the line material (Galvanized

Stranded Steel Earth wire, conductor and earth wire accessories and insulator string

hardware) excluding Power Conductor and Composite Polymer Insulator units and

construction of normal and special tower foundations, erection of normal and special tower,

stringing of conductor & ground wire and testing & commissioning of the complete

transmission line to the satisfaction of the Owner.

Detailed Terms and Conditions are as mentioned in Bid Document for TL PKG which is

supplied already to the Contractor.

EPC – 400/220 KV SUB STATION Package

SCOPE OF WORK -

40

The Scope of work is to cover the design, manufacture, assembly, testing at manufacturer‟s

works, supply & delivery, properly packed for transport at Project Site, of all equipment,

system and accessories, steel structures including Civil, Structural, Architectural work, Fire

Protection, Air-conditioning and Ventilation, complete and efficient erection, site testing,

commissioning & putting into successful commercial operation of new 400/220KV

substation.

Detailed Terms and Conditions are as mentioned in Bid Document for SUBSTATION PKG

which is supplied already to the Contractor.

B.2 CLEARANCES & APPROVALS

B.2.1 Status of Clearances

The latest status of various clearances/approvals/contracts/agreements/facilities is as follows:

Table 25: Status of Clearances

S.N

o

Item Agency Status Remarks

Location A-B/LILO/Location E-F

1. Transmission License

to PQR Ltd

CERC Obtained Vide CERC‟s letter dated April 29,,

2008

2. Installation of O/H

trans line under

Electricity Act 2003

Section 68 : MoP,

GOI

Obtained Vide MoP‟s letters dated 26.05.08

Section 164 MoP,

GoI

Obtained vide gazette notification dated 16.06.09

from MoP

3. Forest Clearance MoEF In process Forest clearance proposal prepared

and submitted to concern DFOs. Joint

verification with DFO is complete,

Detailed forest proposal is submitted

along with all necessary documents

and maps.

3. Environmental

clearance

MoEF - No environmental clearance is required

for transmission projects as per MoEF

notification dated September 14, 2006.

41

S.N

o

Item Agency Status Remarks

Location A-B/LILO/Location E-F

4. PTCC Clearance

(Required before

charging)

PTCC In Process Will be taken up during construction

activity

5. Railway Crossing

(Required before

stringing)

Concerne

d DRM

In Process Will be taken up during construction

activity

6. Highway Crossing

(Required before

stringing)

Concerne

d NHA

In Process Will be taken up during construction

activity

7. Power Line Crossing

(Required before

stringing)

Power

Utility

In Process Will be taken up during construction

activity

8. Airport Authority

(Civil)

(Required before

charging)

Airport

Authority

of India

In process Will be taken up during construction

activity

9. Clearance for

charging (Required

before charging)

CEA In Process Will be taken up during construction

activity

B.3 PROJECT REVIEW

B.3.1 Project details

Project area houses many super thermal power stations due to availability of coal and water,

which are the two main raw materials for a power plant. coalfields at project area comprises

of two main basins.one basin has been well developed and a number of large coal mines of

Coal India are already operational and supplying to NTPC power plants nearby and also to

numerous other plants in the country. Another main basin however is largely unexploited and

is a virgin coalfield. In order to exploit this, Ministry of Coal – GoI has taken steps by

allocating coal blocks to various end user projects. M/s ABC Limited jointly with H Ltd has

42

been allotted a coal mine in the 2nd

main basin having geological reserve of 144 Million Ton

to be shared between the two projects of ABC Ltd and H Ltd.

To implement the power generation project, XYZ limited has been formed as a subsidiary

company of ABC Ltd. The Super thermal power project at location A has been planned for an

ultimate capacity of 2000 MW commencing with 2 X 600 MW in the first phase. Approx

60% of the capacity (700 MW) from the first phase of project at location A would be sold to

K Steel Limited & balance power (400 MW) will be sold to project implementation state.

In order to evacuate the 1100 MW power from the TPP at location A as above, PGCIL had

carried out a detailed study based on which application for open access was applied. Western

Region Coordination Committee had deliberated on the various options and Open access was

accorded for evacuating the power through construction of;

a) D/C 400 KV dedicated transmission lines from location A to B which is the injection

point and from location E to F at the consumer end along with a 400/220 KV Sub-station at

location F – all three schemes to be executed by ABC Ltd.

b) WR system strengthening and 765 KV line from location B to location G to be carried out

by PGCIL.

In order to implement the transmission systems for which ABC Group has been

mandated, a subsidiary company viz PQR Ltd. has been constituted with the intent of not

only setting up of the associated transmission systems of the generation projects of ABC

Group but also to establish ABC Group in the transmission sector as an independent power

transmission company. PQR Ltd can thereafter participate in the private transmission projects

which are planned by Government of India to be awarded thru a competitive bidding process.

B.3.2 Need & Justification

Generation Capacity addition is one of the primary objective of Government of India and

capacity addition of 78,000 MW has been planned in the Eleventh plan. While there is a

need for capacity addition however with the policy of competitive procurement of power,

there is also a need for ensuring low cost of power generation. Thus the delivered cost of

power plays a significant role. It has been established that setting up of a pit-head power

plant and transmitting the power to load centre is more cost effective than transportation of

coal to a distant load centre based power plant.

43

700 MW of Power from the STPP at location A will be supplied to the K Steel Plants

and 400 MW shall be supplied to the state of plant location. The power purchase agreements

with the respective steel companies have been executed and an MOU has been executed with

state Government for supply of upto about 400 MW.

The delivered power cost to the steel plants from the location A power project after

factoring the transmission cost works out much lower than the cost of power from alternate

sources viz grid / gas based power plants & the transmission system is well justified.

The transmission systems schedule is planned such as to synchronize with the

commissioning schedule of the power project. However, the initial requirement of start up

power & power evacuation till the commissioning of the regular system shall be met thru the

LILO line on the C-D transmission line.

Approved scheme for Power Evacuation

Power Grid Corporation of India Limited (PGCIL) had carried out detailed load flow studies

for evacuation of power from the STPP to the beneficiaries. The studies were carried out

considering Western region load generation scenario corresponding to 2010-11 time frames.

It was also assumed that transmission system of location B and western region strengthening

schemes like WRSS – I, II, III, IV etc. would be available in that time frame.

For injection of 1100 MW power from TPP at location A into the western grid, two

alternatives were studied.

Alternative – I: Establishment of a 400 / 765 KV WR pooling station near location B by

LILO of 765 KV B-G line and 400 KV interconnection of location A‟s TPP with the Pooling

station.

Alternative – II: 400 KV interconnection between TPP at location A and Jabalpur, along

with LILO of 400 KV C-D lines at location A‟s TPP.

The various issues related to the above two options were deliberated at the WR coordination

committee and long term open access for transmission of 1100 MW power from location A to

its beneficiaries was accorded by the committee.

B.3.3 Techno Economic Consideration

The project has been appraised from techno economic angle as per REC‟s appraisal

procedure and found eligible for financing. In line with the new Electricity Act 2003, techno-

44

economic clearance from Central Electricity Authority (CEA) and investment decision from

the Planning Commission are not required for transmission project.

B.4 IMPLEMENTATION PLAN

4.1 Implementation Arrangement

4.1.1 Project Management

The Project Management for the Project is proposed to be divided into the following

processes:

Execution (to be carried out by PQR)

The execution stage includes the actual implementation of the design / plan. Letter of Awards

would be issued to suppliers and actual execution of the Project would commence. This will

include casting of foundations also. Subsequently, the towers would be erected, stringing will

be done etc. Right of Way (ROW) issues will be addressed by PQR Ltd. on an on-going

basis.

Closing (to be carried out by PQR)

Closing includes the formal acceptance of the Project and the ending of implementation

Phase. After the Project has been completed, commissioning tests would be carried out. The

contracts with contractors would be closed and final payments to the contractors would be

effected.

Controlling (to be carried out by PQR)

There will be processes in place to monitor and control the development on the basis of

various important metrics of the Project. Some of the important parameters that would be

monitored include Project cost and expenses vis-à-vis the budget, the timelines of various

activities of the Project vis-à-vis the planned targets, etc.

Quality Management (to be carried out by PQR)

Project Quality Management processes include performing all the activities of the

organization that determine quality policies, objectives, and responsibilities so that the

Project satisfies the needs for which it had been undertaken. For this purpose, manufacturing

quality plan and field quality plans of PQR Ltd shall be adopted. Site offices at necessary

locations would be established during Project implementation. Site offices at all locations

have already been established with requisite manpower mobilized.

45

Execution Management

The Construction Works of Foundation, Tower erection and Stringing shall be carried out

under the strict supervision of site engineers overseen and controlled by Project Manager.

The Project Manager‟s organization shall include a Quality and Safety Engineer. Random

checks shall be carried out by Project Manager and other senior officials. Dispute Resolution

System shall be developed for any site related disputes and efforts shall be made to solve

them without loss of time.

The following is the responsibility of PQR Ltd:

Obtaining Right of Way;

Payment of crop compensation; and

Obtaining statutory clearances from Government authorities.

Obtaining Forest Clearances.

B.5 PROJECT COST

As indicated in above, Bid documents circulated by PQR Ltd for the various packages

contained provision for escalation of package value over and above the bid amount,

depending on the increase in the input costs /cost of raw materials from the bidding date to

actual procurement of the packages. All the components like Tower, Earthwire, Hardware

Fittings, MSCJ for Earthwire, MSCJ for Moose, Vibration Damper for Earthwire, Erection

Civil Works, Placement of Reinforcement Steel, Concreting, Conductor, Insulator etc. of

each package were linked to different escalation rates. Escalation rate for each component is

computed by weighted average increase of the benchmark indexes like Diesel index, Labour

index, Iron / Steel index, Cement index, Non Metallic index, Steel / Zinc index, Steel /

Cacmai index, Aluminium index, GS Wire index. The weights were pre-defined in the

respective packages. The indexes to be used to find final input cost of the equipments are

IEEEMA, CACMAI, and WPI of RBI etc. The completion cost for the project as per Jan

2006 base rate for placement of orders was Rs.1335 crores excluding IDC & Margin money.

Table 26: Project Cost

( Rs in Crore)

Location A & B LILO Location F

Project Cost Units Value Value Value

EPC Costs

46

Equipments Supply Cost ( Conductor &

Insulator) Rs. Crs

309.30 9.60 43.80

Erection & Civil Cost ( Towering & Other

supply) Rs. Crs

332.30 25.70 74.20

Sub Total Rs. Crs 641.60 35.30 118.00

Total EPC costs Rs. Crs 794.90

Non EPC Cost

Land and Site Development Rs. Crs 66.81 0.25 1.59

Pre-Operative Expenses / Overheads Rs. Crs 6.42 0.35 1.18

Contingencies Rs. Crs 24.43 1.08 3.62

Spares included in EPC cost Rs. Crs - - -

EPC Management Cost Rs. Crs 96.24 5.30 17.70

Sub Total Rs. Crs 193.90 6.98 24.10

Total Non EPC Cost Rs. Crs 224.97

Others

400/220KV S/S at location F Rs. Crs

- 140.00

Bay & Reactor at A/B Rs. Crs 59.00 - -

Margin Money for WC Rs. Crs 16.62

Financing Charges Rs. Crs 10.28

Interest During Construction Rs. Crs 89.30

Sub Total Rs. Crs 175.20 - 140.00

Rs. Crs 1,010.69 42.28 282.10

Total Project Cost Rs. Crs 1,335

47

B.6 FINANCING PLAN

The cost of the Project estimated at Rs.1335 crore is proposed to be financed at a debt /

equity mix of 70:30. The details are as under:

Table 27 : Financing Plan

PARTICULARS AMOUNT

(RS. CRORE)

%

CAPITAL CONTRIBUTION

ABC LIMITED

400.5

30%

DEBT FINANCE

RUPEE TERM LOANS

934.5

70%

Total 1335.0 100%

B.7 SELLING ARRANGEMENT

PQR Limited has entered into Transmission Service Agreement on 20th

Oct 2008 with XYZ

Limited for Evacuation of the Power. Transmission Service Charge or TSC shall mean the

tariff for transmission of electricity as defined under the CERC Regulations, 2004. As per the

current CERC regulations, Transmission Service Charges include:

(a) Interest on loan capital;

(b) Depreciation, including Advance Against Depreciation;

(c) Return on equity;

(d) Operation and maintenance expenses; and

(e) Interest on working capital.

The Transmission Charges shall be payable by XYZ Ltd from the date when PQR Ltd declare

commercial operation of the Transmission system.

Billing & Payment: PQR Ltd shall raise an invoice on XYZ Ltd for the previous month on

48

the first day of the succeeding month for the payment of Transmission charges. XYZ Ltd

shall make the payment to PQR Ltd within 30 days from the date of the date of invoice for

the payment of Transmission charges. The payment shall be made by XYZ Ltd by way of

direct transfer to the designated bank account of PQR Ltd.

PAYMENT SECURITY MECHANISM

The payment of transmission charges shall be secured by XYZ Ltd by opening an

unconditional, revolving and irrevocable letter of credit („LC‟) for an amount equivalent to 3

(three) months of estimated average monthly billing of transmission charges. The LC shall be

from a bank acceptable to PQR Ltd. All cost relating to opening and maintenance shall be

borne by PQR Ltd.

B.8 OPERATIONAL COSTS, PRICES AND ASSUMPTIONS

Table 28: Operational Cost, Price & Assumptions

Location

A&B LILO Location F

Transmission Capacity MW 1,200 1,200 700

Construction Start Date dd-mmm-yy 01-Oct-08 01-Jul-09 01-Jul-09

Construction Period Months 30 18 21

Commercial Operations Date dd-mmm-yy 31-Mar-11 31-Dec-10 31-Mar-11

Useful Life Years 25 25 25

Operational Till dd-mmm-yy 29-Feb-36 30-Nov-35 29-Feb-36

No of quarters 10 6 7

Distance Kms 315 20 98

Project Cost Units Value Value Value

EPC Costs

Equipments Supply Cost ( Conductor

& Insulator) Rs. Crs

309.30 9.60 43.80

49

Erection & Civil Cost ( Towering &

Other supply) Rs. Crs

332.30 25.70 74.20

Sub Total Rs. Crs 641.60 35.30 118.00

Total EPC costs Rs. Crs 794.90

Non EPC Cost

Land and Site Development Rs. Crs 66.81 0.25 1.59

Pre-Operative Expenses / Overheads Rs. Crs 6.42 0.35 1.18

Contingencies Rs. Crs 24.43 1.08 3.62

Spares included in EPC cost Rs. Crs - - -

EPC Management Cost Rs. Crs 96.24 5.30 17.70

Sub Total Rs. Crs 193.90 6.98 24.10

Total Non EPC Cost Rs. Crs 224.97

Others

400/220KV S/S at Hazira Rs. Crs

- 140.00

Bay & Reactor at Mahan/Sipat Rs. Crs 59.00 - -

Margin Money for WC Rs. Crs 16.62

Financing Charges Rs. Crs 10.28

Interest During Construction Rs. Crs 89.30

Sub Total Rs. Crs 175.20 - 140.00

Rs. Crs 1,010.69 42.28 282.10

Total Project Cost Rs. Crs 1,335

Spares included in EPC cost % 0% 0% 0%

Contingencies % 3% 3% 3%

EPC Management Cost % 15.00% 15.00% 15.00%

50

Means of Finance Units Value

Debt-Equity % 30% 70%

Debt-Equity Ratio 2

Debt Rs. MM 934.5

Equity Rs. MM 400.5

Upfront Equity % 50%

Return on Equity (ROE) % 15.5%

Debt Units Value

Moratorium Months 12

Repayment Start Date dd-mmm-yy 31-Mar-12

Repayment Period Quarters 48

Last Repayment Date dd-mmm-yy 30-Mar-24

Interest Rate on Rupee Term Loan % 12.50%

DSRA Months 3

Interest on W.C. Loan % p.a. 12.5%

Margin Money for Working

Capital

% 25.0%

Interest on DSRA % p.a. 8.0%

Generation Units Value

Transmission Capacity MW 1,200

Actual PLF % 85%

Auxiliary Consumption (for Tariff) % of

Generation

8.5%

Power given free % of Net

Generation

7.5%

51

Availability % 100%

Capacity Allocation % of Net

Generation

MW Net of Loss

Capacity allocated to UVWTCL 30.00% 329.40 329.40 245.27

Free capacity allocated to

UVWTCL

7.50% 82.35 82.35 61.32

Capacity allocated to K Ltd 62.50% 686.25 686.25 510.98

100.00% 1098.00 1098.00 817.57

O & M Cost Units Value

Norms for O & M expenses per ckt-Km and per bay

FY 2010-11

Dedicated TL 0.0099 CERC

Bay 0.5540 CERC

Location

A&B

LILO location F

Distance Kms 315 20 98

Total ckt 315 20 98

No. of Bays 4 2 13

O & M Cost 5.35 1.31 8.17

Escalation in O&M cost % 5.72% 5.72% 5.72%

Working Capital Requirement Units Value

O&M Expenses no. of months 1

Receivables no. of months 2

Maintenance Spares of historical cost 15% of O&M exp.

Escalation in Spares per annum

52

Depreciation Units Value

Total % of assets to be

depreciated

% 100.00%

Total Value of assets to be

depreciated

Rs. Crs 1,266.41

Residual Value of Assets % 10%

Book Depreciation Rate - SLM

Building % 5.28%

Plant and Machinery % 5.28%

Book Depreciation Rate-WDV

Building % 10.00%

Plant and Machinery % 15.00%

Book Depreciation Method SLM

Tax Depreciation Rate - WDV

Building % 10.00%

Plant and Machinery % 15.33%

Tax Units Value

Corporate Tax Rate % 33.99%

MAT Rate % 11.33%

Tax Holiday under Section 80-

IA

To be claimed in

Consecutive years in which to

be claimed

Years

Years

15

10

53

B.9 COST BENEFIT ANALYSIS

The cost benefit analysis of the project, assuming a total project cost of Rs. 1335.0 crore is as

follows:

Table 29: Cost Benefit Analysis

Parameter Value

Project cost, Rs. Crores 1335.0

DSCR

-Minimum 1.38

-Average 1.65

-Maximum 2.21

Project FIRR, pre-tax, 25 years 12%

B.10 PROJECT RISK ANALYSIS

B.10.1 Risk Matrix

Table 30: Pre-Construction

S.

No.

Risk Mitigation / Allocation

1 Grant of

approvals /

clearances

Major approvals such as transmission license, MoP approval for

transmission line, forest clearance, etc. have been obtained/are in

advance stage. Most of the clearances/consents/permits in a

transmission project can be obtained during the construction period.

Suitable conditions have also been stipulated for obtaining all

clearances/approvals and ensuring compliance with the same.

2 Finalisation of

Contracts

All the contract bids have been evaluated and finalised by PQR Ltd.

The awards are ready to be placed. A suitable pre-disbursement

condition has been stipulated in this regard.

3 Procurement of

land

Land procurement is not involved in the proposed project.

54

Table 31: Construction

S. No. Risk Mitigation / Allocation

1. Construction ABC Group / ABC Power is the leading reputed company in the

field of implementation of power projects. They have already

commissioned 1100 MW at location F and two more projects are

in advance stage of commissioning i.e. 1200 MW location A TPP

and 1200 MW at location H.

2. Cost increase

and price

escalation

beyond

estimated

project cost

The Project is proposed to be implemented on individual package

basis/turnkey basis The contracts for individual packages as bid

out provide for an adjustment in price variation and the tariff

would be commensurate to the Project Cost thus derived.

Also, adequate contingency provision has been made in the Project

cost to take into account, any variation in costs. Suitable condition

is also being stipulated with regard to increase in project cost.

3. Finalisation of

Project

Contracts

All the Key Contracts has been Finalised & signed with ECIL

4. Completion

delay

All contracts also provide for provision of Liquidated damages.

Also, the major contracts in terms of value and scope of work are

tower packages, which are being awarded to reputed contractors

having a proven past record. Thus the risks due to delay are

minimal.

5. Country risk All equipment which shall be supplied are indigenous.

6. Equity Infusion The promoter‟s contribution aggregating Rs. 400.5 crore for the

Projects The ABC Group has demonstrated its commitment to

Various large and small sized projects undertaken by it and its

equity contribution in its project is noticeable as reflected in the

Group‟s equity holding structure.

Table 32: Post Construction

S.

No.

Risk Mitigation / Allocation

1. Regulatory risk Tariff shall be as per CERC based on the prudence check of the

Project Cost which shall be paid by the Beneficiaries.

2. System Full transmission service charges shall be recoverable at

55

S.

No.

Risk Mitigation / Allocation

Availability normative availability of 98.00%. However, in case the same is

not achieved, the tariff charges shall be reduced as per CERC

provisions.

3. Payment

Security

Transmission Service Agreement has been signed between

company PQR & XYZ. Company XYZ shall pay to PQR Ltd

entire transmission charges, to be decided as per CERC norms.

4. O&M The maintenance of the transmission lines would be the

responsibility of PQR.

5. Technology risk Technology involved in implementation of transmission lines is

casting of foundations with cement, concrete and steel, erection of

lattice structured towers, installation of insulators and stringing

together of cables at the top of the tower. The same technology has

been in use since many years in India and PGCIL being the largest

transmission company in India is currently implementing its

Projects on similar technology. Therefore, no technological

challenges are envisaged.

6. Force Majeure Though risk will have to be borne by the project company, it may

impact lenders too. To mitigate this, company PQR proposes to

obtain insurance against various risks as may be necessary for

which a condition has been stipulated.

7. Environmental

Hazards

Power transmission systems do not impact the environment as no

emissions are involved in these Projects.

B.11 STRENGTHS AND WEAKNESSES

Strengths

ABC Group / ABC Power is the leading reputed company in the field of

implementation of power projects. They have already commissioned 1000 MW at

location F and two more projects are in advance stage of commissioning i.e. 1200

MW location A TPP and 1200 MW at location H.

The project has been approved by CERC and recommended by Planning Committee

for evacuation of power from upcoming location A TPP.

PQR Ltd has already obtained transmission license from CERC.

PGCIL already given the approval for Long Term Open Access.

56

The financial closure for Generation project is achieved.

All the equipment shall be indigenous and shall be supplied by reputed players in the

area of transmission.

Weaknesses

Some of the clearances and approvals of the Project would be obtained in various

Phases/stages during the construction period. The company should take necessary

steps to obtain the same in time.

B.12 ROW & forest clearance relates issues are required to be taken up on priority

Basis.

I. SECURITY PACKAGE AND TERMS & CONDITIONS

1. Primary Security

a) A first pari passu charge by way of mortgage (or assignment of lease deed in favour of

REC as may be applicable) on the immovable properties, including land, present and future,

and hypothecation of movable assets, present and future, of the Company, including movable

plant & machinery, machine spares, tools and accessories, furniture, vehicle and all other

movable assets. To make such charge meaningful, appropriate provision will be made to the

Satisfactions of REC, to allow REC the right to inspect, take possession thereof, and sell the

same in accordance with the provisions of the securitisation Act. The company also needs to

create a first pari passu charge by way of mortgage on project related infrastructure subject to

specific charge created/to be created and first charge on current assets in favour of Working

Capital Lenders. The mortgage/assignment of lease deed of the land in favour of REC may be

completed within a maximum period of 6 months from date of documentation.

(b) An assignment of all the title and interest of the company in to and the entire project

document and other documents as allowed by the applicable laws of the land to which the

company is a party and all other contracts relating to the project, in favour of

REC/Consortium Lenders.

(c) Pledge of Promoter‟s shareholding in the project aggregating to 51% of the equity share

capital in the company in favour of REC/consortium lenders of primary debt.

(d) An assignment of right, title and interest of the company by way of first pari passu charge

in, to and under all the Government Approvals, Insurance policies and uncalled capital of the

57

Company, as allowed by the applicable laws of the land.

(e) First pari passu charge on the letter of credit/escrow account, trust and retention account,

DSRA and other reserves and any other bank account of the Company wherever maintained.

(f) The borrower shall undertake that if at any time during the subsistence of this agreement,

the corporation is of the opinion that the security provided by the borrower has become

inadequate to cover the balance of the loans then outstanding, the borrower shall provide and

furnish to the Corporation, to their satisfaction, such additional security as may be acceptable

to Corporation to cover such deficiency.

(g) Corporate Guarantee for 100% of the loan amount sanctioned by REC. This Corporate

Guarantee shall be of the Holding Company of the borrower. i.e. ABC Limited.

The above charges will rank pari-passu amongst the participating Lenders, including working

capital Lenders for the Project. Working capital lenders will have first charge on current

assets and second charge on the fixed assets subject to specific charge created/to be created.

2. Pre-Commitment Conditions

Before execution of the loan document, the Company shall to the satisfaction of REC,

(a) Provide an undertaking that the completion cost of the Project shall not exceed Rs.

1335.06 crore and in case of any cost over-run, the same shall be met by the Promoters from

further equity contribution /subordinated debt from the Promoters or loans arranged by

Promoters without recourse to Project assets, in a manner and to the satisfaction of the

Lenders.

(b) Agree for appointment of Lenders‟ Independent Engineer (LIE), Lenders‟ Legal Counsel

(LLC) and Lenders‟ Insurance Advisor (LIA) and any other agencies as may be necessary for

the review and monitoring of the project and agree that expenditure incurred for availing the

services from these agencies shall be borne by the Borrower.

(c) Undertake that without the written consent of REC, the Company shall not make any

modifications to any of the Project Documents for the project, undertake any new project, or

augment, modernize, expand, or otherwise change the scope of the aforesaid project, make

any investments or take lease.

(d) Prepay any loan

(e) Create any security interest in favour of any person, firm or company;

58

(f) Undertake to open a Trust and Retention Account (TRA) in favour of REC and REC shall

have pari passu priority in cash flow along with other lenders of the project.

(g) Undertake to furnish to REC such information and data as may be required by them or

any agency appointed by the Lenders to ensure that the physical progress as well as

expenditure incurred on the project are as per the schedule and also agree that the

disbursements shall be made by REC on the recommendation of the lenders engineer about

the physical progress (actual & anticipated) of the works and on compliance of conditions

precedent to disbursement.

(h) Agree that all important contracts shall be reviewed by LIE and LLC and that REC

reserve the right to insist or recommended changes, as applicable, which shall be carried out

by the Borrower to the satisfaction of REC.

(i) Undertake to obtain/renew/keep in effect all applicable statutory & non-statutory

clearances and approval required during implementation and for operation of the Project up

to commissioning of the Project.

(j) Agree to modify its Memorandum of Association and Articles of Association, for

enhancement of the authorized share capital and borrowing power as per the envisaged

financing plan, if required, and incorporate any other changes if required by REC.

(k) Agree to finalize the insurance package and submit the same for review by the Lenders

Insurance Advisor/ Lenders and submit the certificate regarding adequacy of insurance.

(l) Agree that REC reserve the right to appoint any independent /concurrent auditors for the

review of the Project as deemed fit during the currency of the loan.

(m) Agree that conditions stipulated for financial assistance by other participating lenders,

except for interest rate and fees, shall apply mutatis mutandis for REC‟s financial assistance

for the project, if acceptable to REC.

(n) Undertake to make necessary arrangements for operation & maintenance of the project at

least 6 months prior to the COD of the project to the satisfaction of REC.

(o) Agree that REC shall have the right to stipulate any other condition, as deemed fit before

documentation of loan.

(p) Submit an undertaking that the securities would be created as per the stipulation of the

59

sanction.

(q) Provide an undertaking that the company shall not, without prior intimation to REC: -

Declare any dividend, Commit fresh equity in any other new project till their committed

equity is subscribed to in full and paid up.

(r) Agree that the REC shall have a right to appoint one nominee Director on the Board of

Directors of the Company.

(s) Accept the unqualified right of Lenders/RBI/appropriate body to disclose or publish, in

case of default, the details of the default, name of the company and its directors in such

manner and through such media, as they may, in their absolute discretion, see fit.

3. Pre Disbursement Conditions

Prior to first disbursement under the Facility, the Borrower shall, to the satisfaction of the

Lenders, have complied with the following:

(a) Submission of certificate: a) That the company has no over dues or defaults in respect of

the financial assistance obtained from its lenders; b) The disbursement from REC shall be

utilised for meeting the cost of transmission project as mentioned in the sanction of loan.

(b) Demonstrate to REC that arrangements have been made for tie-up of equity from the

promoters to the satisfaction of the REC. Based on the advice of the REC in the matter,

other Lenders shall also agree to the same.

(c) The EPC/BOP contracts shall stipulate adequate liquidated damages for shortfall in

performance guarantees. The Lenders‟ Independent Engineer shall vet the cost of project,

contracts for supply of major equipments, including provision for liquidated damages and

performance guarantee and other major contracts. LIE will also examine the reasonability

of these contract prices. REC/Lenders will have right to transfer/sale Assets of the Project

to the third party in case of default by the borrower.

(d) Open a Trust and Retention Account (TRA)/Escrow to the satisfaction of lenders through

which all the Project cash flows would flow.

(e) Agree that management and control of the Company shall not change during the currency

of the loan without the consent of the lenders. Remove the directors, whose names appear

in RBI defaulters‟ list from its Board, or get their names deleted from the list.

(f) Submit an undertaking that it has borrowing power for the requisitioned loan as per the

prevailing legislation.

(g) Disbursements would start after tie up of entire loan for the project by PQR Ltd.

60

(h) That the upfront equity of 50% has been incurred/ brought in the TRA account for the

project.

(i) That the loan documents have been executed, the security for the loan has been created as

per the satisfaction of REC and the terms and conditions of the loan.

(j) That the PQR has submitted the project execution schedule showing all the major

milestones of the project and the draw down schedule.

(k) That the 400 MW power to be wheeled to respective state or its nodal agency is firmed up

with that state or any other buyer before COD otherwise the same will be included in the

CG to be provided by ABC Ltd. So that PQR gets the tariff against full capacity

(l) That all the EPC Contracts for the project execution has been awarded and copies of the

EPC contracts are submitted to REC

(m) The land for the 400 KV substation at location F has been acquired (by purchase or on

lease). That the agreements with PGCIL and NTPC for use of their sub stations at

location B and E have been executed.

(n) That the first stage of forest clearance for construction of transmission line/substation has

been obtained within 6 months from first disbursement.

(o) That the Transmission Service Agreement with XYZ Ltd. has been amended so as to

incorporate that the XYZ shall pay to PQR the wheeling charges (as per CERC norms)

for the designed and installed capacity of the transmission system irrespective of the

quantum of power wheeled.

(p) That the Transmission Service Agreement with XYZ Ltd. has been amended so as to

incorporate that the XYZ would pay and bear the cost of the LILO of C-D line at location

A along with ROE, either as a part of wheeling tariff or otherwise so as to recover the

entire cost of the LILO line, as the LILO arrangement is proposed to be after the

dedicated transmission system is available.

(q) That the project documents and statutory clearances as allowed by the laws of the land

have been assigned / charged in favour of REC.

(r) That the PQR Ltd shall provide an undertaking to the effect that in the event of working

capital loan is not arranged prior to drawl of 90% of debt for the project, it shall

contribute the amount equal to working capital margin from its own sources.

(s) PQR Ltd shall constitute a Project Management Committee of Directors/senior executives

for the purpose of supervision and monitoring of the progress of the project.

(t) PQR Ltd shall pay lead FI charges (0.25% of the loan at present), upfront fee (as

applicable) as per the loan policy circular of REC.

61

4. Clearances / Approvals

The borrower should obtain all applicable statutory and other clearances required for

implementation of the Project, as and when required, including the following, not later than

schedule given below:

a) 1st Stage Forest clearance for the project from MoEF, GoI within 6 months from first

disbursement;

b) 2nd Stage (Final) Forest Clearance for the project from MoEF, GoI within twelve months

from date of first disbursement.

c) Section 164 from MoP, GoI within six months from date of first disbursement

d) NOC for the project from Airport Authority of India, if applicable, within six months

from the date of first disbursement.

e) Clearances/Approvals for Railway Crossing, Highway Crossing & Power Line Crossing,

at least six months before COD of the project.

f) PTCC Clearance & Clearance for charging the transmission lines from CEA, at least three

months before COD of the project.

The amendments of the transmission license from CERC and approval from MOP, GoI to be

obtained for change of triple conductor to quad conductor for A-B line within six months

from date of first disbursement

5. Other Conditions

i) Lenders reserve the right to withhold disbursement of the amount of loan equivalent to

the provision against margin money for working capital in the cost of the project till

such time as the project is near completion and the build-up of the working capital

commences.

ii) In case of default in repayment of the principal amount or payment of interest or any

other dues on due dates, the Lenders / RBI / CIBIL shall have right to disclose details of

the default and/or other information and the name of the Borrower and of its directors

as defaulters.

iii) The Lenders acting through REC will have the right to examine the books of accounts

of the Borrower and to have the Project site inspected from time to time by officers of

the Lenders and/or outside consultants. Reasonable expenses incurred by the lender in

this regard will be borne by the Borrower.

62

CHAPTER 4

4.1 INTRODUCTION TO RAPDRP PART-B

1) Part B of the R-APDRP covers system improvement works mentioned in the DPR Volume IV.

This aims at achievement of AT&C losses to 15% in town areas. Any other work may be

considered if utility justifies that the implementation of the same would lead to Loss Reduction in

the project area.

2) The utilities will be required to achieve target AT&C loss reduction at the entire utility level

every year starting one year after the year in which first project of the Part-A is completed. Utilities

having AT&C loss above 30% Reduction by 3% per year.

Utilities having AT&C loss below 30% Reduction by 1.5 % per year.

3) Utility shall submit detailed cost benefit analysis of the works planned to be implemented along

with the DPR. It should include existing loss level, works proposed and loss level after

implementation.

4) The Part-B project shall be completed within three years from the date of its sanction. Fund to

be released to the Part-B project shall be limited to first three years, from the date of its sanction.

5) Utility has to appoint a Nodal Officer who shall be involved from concept to commissioning of

the system and shall also be the contact point for Nodal Agency for any clarification, issue etc.

6) The Utility will have to certify and sign the DPRs prepared by them stating that the DPR is in

line with guidelines issued by Ministry of Power/ PFC for Part B, R-APDRP and is aligned

completely with the Utility‟s business processes before the same is forwarded to PFC.

7) Utility should prepare a comprehensive plan for R-APDRP implementation. All the proposed

towns under the scheme (both Part-A and Part-B) shall be clearly listed and DPR of each town

shall be forwarded to PFC for consideration. Any standalone/ piecemeal scheme for any Project

Area for subsequent integration is liable to be rejected.

8) Utility has to ensure timely availability of any other infrastructure or facilities that are essential

for implementation of Part-B works but are not in the scope of Contractor viz. land acqusition, pole

location etc.

9) Works in progress should not be included in the new schemes under R-APDRP.

10) Utility shall provide detailed information regarding existing infrastructure, any bottleneck in

implementation of the works and the works proposed in the project to the Contractor before award

of contract.

63

11) Utility shall submit separate DPR for each Project Area. For all practical purposes, boundaries

of the Project Area shall be considered as defined in the Part-A of R-APDRP by the Utility.

12) Utility shall submit DPRs of all Project Areas (Towns) preferably together to nodal agency

(PFC) for approval of Steering Committee.

13) DPR shall be annexed with digital single line diagrams (SLD)/Nodal drawings of existing and

proposed distribution network of the Project Area. DPRs without the same would not be

considered for sanction.

14) The cost estimates should not include any departmental overhead expenses and cost of

consultancy. All such expenditures should be borne by the utility.

15) The Utility shall work out the AT&C loss of the project / town and facilitate with independent

agency (to be appointed by MoP/ Nodal Agency) for validation of the same including providing

documents etc. The AT&C loss of the project area duly certified by TPIEA before start of Part-B

works will be treated at Base Line AT&C loss of the project area for all purposes.

16) Scope variation on account of increase of consumer base during the currency of contract or any

other reason would be to Utility‟s account.

17) For the project areas envisaged for implementation of SCADA, distribution system shall be

made compatible so as to ensure interface with SCADA/DMS system. The cost of such enabling

features shall be covered in present DPR.

18) Utility has to ensure Ring Fencing of the project area including establishing the Baseline

AT&C losses before implementation of Part-B project. The following guidelines have to be

adhered to while ring fencing is done for project area

a) All input points shall be identified and metered with downloadable meters for energy

inflow accounting in scheme area

b) All outgoing feeders are to be metered in sub-station with downloadable meters.

c) Scheme area should be ring fenced i.e. export and import meters for energy accounting

shall be ensured

d) Arrangement for measuring total energy flow in the rural load portion of project area by

ring fencing if rural load feeder is not segregated.

19) Cost of consumer meters installed under R-APDRP should not be charged to consumer.

20) Distribution Transformers procured under R-APDRP scheme shall have efficiency level

equivalent / better than that of three star ratings of BEE, where ever BEE standard is applicable.

For other DTs, where, BEE standard is not applicable, CEA guidelines shall be followed.

64

21) In case of new 11 KV feeders/sub-stations / DTs are installed at any point of time after

sanction of Part-A, utility must make provision for installing AMR at appropriate points and

ensure integration with IT system proposed/installed in Part-A

22) Return on investment for the project shall not be less than 10%.

23) Project shall be preferably executed on turnkey basis.

24) Planning for LT lines, DTs etc shall be done, considering load growth for three years and

existing utilization of transformation capacity & lines.

25) Planning for 11 KV lines, Power Transformers and Primary S/S shall be done, considering

load growth for five years.

26) For calculation of future Load, the growth may be on the basis of average of last five year load

growth.

27) Total capacity of Distribution Transformers may be upto 200% of the Power Transformer

capacity.

28) Capacity enhancement of DTs shall not be done in isolation. Capacity enhancement of LT

lines shall also be clubbed with capacity enhancement of DTs.

29) All categories of consumer meters can be proposed in Part-B of R-APDRP scheme for

replacement from electromechanical to electronic meters. AMIs can be considered for deployment.

The meters shall be tamper proof electronic meter, as per R-APDRP guidelines issued from time to

time.

30) In case of any new asset created at any point of time after sanction of Part-A, utility must

make provision for installing AMR at appropriate points and ensure integration with IT system

proposed / installed in Part-A. Utility should also use GPS survey through GPS machine for new

assets created during implementation of Part-B scheme and subsequent thereof.

31) The following items may be included by the utilities under PART B:

Table 33: Items Included by the Utility Under Part-B

Sr.no Nature of work Evaluation Method

1 Replacement of existing HT & LTCT Electromechanical

consumer meters with two way (AMR compatible, open

protocol) tamper proof electronic meters. For replacement of

whole current electromechanical consumer meters, the

guidelines of CEA shall be adopted.

The utility shall provide

the number of such

consumers.

65

2 If existing service line is prone to tamper and pilferage the

same shall be replaced with armoured or XLPE cable for

which minimum configuration should be :

(i) Single Phase consumers: min. 4 sq.mm

(ii) Three Phase consumers: min. 6 sq.mm

The replacement of

service cable for

maximum 25%

consumers of the town

may be allowed. In

exceptional case the

quantity can be

increased.

3 Installation of new Distribution Transformers in following

cases:

(i) If the length of LT feeder is more than 300 mtr then new

Distribution transformer may be proposed to improve HT:

LT ratio.

(ii) If existing peak load on DT is more than 70% of its rated

capacity then new DT may be proposed.

(iii) Even if the length of LT feeder is below 300 meter but

the peak load on the feeder is more than 70% of rated

thermal capacity of the conductor, new DT should be

installed or conductor should be replaced by higher size.

Provision of Isolator, HT fuse / horn gap & LA at each

Distribution Transformer, if not provided earlier.

Alternatively this isolator, HT fuse / horn gap fuse can be

replaced with drop out fuse with On Load maintenance

facility thereby reducing system interruptions.

Each Distribution

Transformer of 25 KVA

& above shall be

provided with minimum

two LT feeders. In case

of only one existing LT

feeder, scheme for laying

new LT circuit may be

prepared.

5 Provision of LT distribution box for control and protection

of outgoing LT circuits.

6 Each Distribution Transformer of 25 KVA & above shall be

provided with minimum two LT feeders. In case of only one

existing LT feeder, scheme for laying new LT circuit may be

prepared.

7 If the peak load on existing 11KV feeder is more than 75%

of rated thermal capacity of the conductor, conductor with

higher capacity may be proposed or feeder bifurcation may

be proposed.

8 If peak load on existing 33/11KV S/S is more than 80% of

its transformer capacity or the O/G 11KV Feeders have peak

load more than 75% of their thermal capacity , new

66

33/11KV S/S may be proposed.

9 11 KV feeder segregation may also be proposed for (i)

reducing boundary metering points (ii) reduce complexities

involved in consumer indexing, GIS based asset mapping

(iii) fixing greater accountability and responsibility

10 Intelligent Ring main unit & sectionaliser may be proposed

for such town which fulfill any of the following criterion :

(i) Where SCADA is proposed.

(ii) Population of Town is more than 1 lakh.

(iii) Annual energy input is more than 100MU.

(iv) Any other specific requirement.

11 The Distribution Transformer may be provided with the

capacitors of following ratings at LT side:

(i) 100 KVA : 12 KVR

(ii) 63 KVA : 8 KVR

(iii) 40 KVA : 6 KVR

(iv) 25 KVA : 4 KVR

12 Installation of ABC cables in dense, theft prone & congested

areas. Both HT & LT ABC may be proposed. The capacity

of ABC shall be 20% more than that of bare conductor, as

thermal overloading capacity of ABC is less than Bare

conductor.

13 In theft prone area and to improve HT: LT ratio, HVDS may

be proposed. Total capacity of HVDS shall be higher by

20% than conventional LT S/S.

14 For the towns where SCADA has been proposed , the

following electrical interfaces shall be included in PART B :

(i) Battery Charger at each 33KV S/S if not available.

(ii) Conversion of overhead 11 KV line with Underground

11 KV line with installation of Fault Passage Indicators.

(iii) Motorized breaker for all incoming & outgoing feeders

at 33 KV substations.

67

(iv) Open protocol electronic relays

(v) Ring Main Unit (SCADA Ready) / sectinaliser.

(vi) Separate CTs for SCADA purpose may be considered.

15 10% line length of 11 KV lines may be considered for auto

re-closer (self healing) scheme.

32. Following documents shall be submitted for cost justification:

(i) Utility shall provide approved schedule of rate of current financial year for proposed works

against justification of cost.

OR

(ii) Utility shall provide approved stock issue rate of current financial year for justification of

material cost.

33. Utility shall submit cost estimate of each and every proposed work. This will ensure the

preliminary study and preparedness of the utility about the work. This will also help in appraising

the proposed cost in DPR.

4.2 PROJECT OBJECTIVE

The main objective of the scheme is to reduce the AT & C loss ≤ 15% and make

the system economically viable and improve the reliability of supply to project Area

consumers.

Table 34: Brief Profile of State/Utility

Name of State Punjab

Name of Utility (Short Name) PSEB

Date of Incorporation 20-Oct-60

Total Number of Utility Consumers 6631407

Previous Financial Year

Billing Efficiency % 75.01%

Collection Efficiency % 100.17%

AT&C Losses % 24.86%

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4.3 PROJECT AREA DETAILS

Table 35: Project Area Details

Data for AT&C Losses Computation for Project

Area

(Available data for Previous FY Before Project

Sanction)

Unit

Data for

Previous

FY 2008-

09

FY 2008-09

Energy Input M Units 1369.61

Energy Sales M Units 945.69

Total Revenue Billed Rs. Lac 33832

Total Revenue Collected (including arrears) Rs. Lac 33990

Arrears {Actual or Total Revenue collected-

Revenue billed} Rs. Lac 158

Billing Efficiency % 69.05%

Collection Efficiency % 100.00%

AT&C Losses {Assessed for Base Year-0} % 30.95%

Loss Reduction Trajectory Unit Projection

Year-1 % 29.50%

Year-2 % 27.00%

Year-3 % 23.00%

Year-4 % 19.00%

Year-5 % 15.00%

Year-6 % 15.00%

4.4. COMMERCIAL INFORMATION

Table 36:Commercial Information

Particulars FY 08-09 FY 07-08 FY 06-07

Peak Demand (Met) MW 346.08 330.76 320.32

Peak Demand (Unrestricted) MW 428.53 413.97 398.91

Energy Input MU 1369.61 1360.54 1294.21

Metered Energy Sales MU 940.88 935.91 884.28

Assessed Energy MU 4.81 4.7 3.27

Total Energy Billed MU 945.69 940.61 887.55

Revenue Billed Rs. Lac 33832 34269 32132

Revenue collected Rs. Lac 33832 34143 31752

Billing Efficiency % 69.05% 69.14% 68.58%

Collection Efficiency % 100.00% 99.63% 98.82%

AT&C Losses % 30.95% 31.12% 32.23%

DT Failure rate (Yearly) % 8.57 9.93 10.33

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Project Cost Rs. Cr

246.29

Scheduled date of completion (Part-B Project) 31/03/2013

Energy Input M Units 1369.61

AT&C Losses {Assessed for Base Year-0} % 30.95%

4.5 SCOPE OF WORK

Write-up on system strengthening and other works to be covered in the Project along with need

and justification.

Utility shall submit a report of detailed study along with survey report to bring down the AT&C

loss of project area from present level to 15%. This shall be inclusive of all proposed works along

with justification for the same.

Present level of AT&C losses of Amritsar City is 30.95% during the base year 2008-09. These will

be brought down to 15% in 6 years & following types of work will be executed to bring down the

losses

1.Sub Transmission System I

1.1 66/11 or 33/11 KV SS : New/Augmentation

As the existing S/S are overloaded due to increase in load new 5no. 66KV Grid S/Stn, Capacity

Augmentation of existing power transformers running at more than 80% capacity and

additional 3no Transformer has been proposed

1.2 66 or 33 KV Line : New Feeder/ Feeder Bifurcation/Augmentation

For new S/S new 5no feeders have been proposed

1.3 11 kV Line : New Feeder/ Feeder Bifurcation

For increasing the reliability following are proposed:

- Installation of automated RMUs along with aux power supply to

Operate sw/breaker - 235 Nos.

- Installation of remote communicable FPIs (O/C, E/F) 402 Nos.

- Installation of remote switchable breakers 89 Nos.

- Installation of new feeder 33 Nos.

- Augmentation of Conductors 188 Km

- Feeder Bifurcation (with proper justification)

- Associated Civil Works 235 Nos.

70

- Any other work that can lead to loss reduction

1.4 Distribution Transformer: Capacity Augmentation/ New Transformer

Existing D/Ts are overloaded :

- Installation of New Transformers 613 Nos

1.5 LT Line : New Feeder/ Feeder Bifurcation

1.6 Capacitor Bank

1.7 Aerial Bunched Cables

2. HVDS

3. Consumer Metering

3.1 Some consumers still have old EM type meters, which need to be replace with new

Tamper Proof Electronic meters.

4. Mobile Service Centre

4.6 PROJECT FUNDING

Table 37:Project Funding

Cost Item Total Cost GoI

(25%)

PFC/

FIs Utility

Total Setup Cost Rs.Cr 246.29 61.57 184.72 0.00

4.7 PROJECT BENEFITS

Table 38:Financial Benefits

Base Year-

0 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6

AT&C

Losses % 30.95% 29.50% 27.00% 23.00% 19.00% 15.00% 15.00%

Internal Rate of Return (IRR) % 37.6%

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4.8 PROJECT BENEFITS (AT & C LOSSES)

Table 39: AT&C Losses

For the Project Area Unit

Assessment

of Existing

Losses for

Base Year

Energy Input M Units 1369.61

Energy Sales M Units 945.69

Total Revenue Billed Rs. Lac 33832

Total Revenue Collected (including arrears) Rs. Lac 33990

Arrears {Actual or Total Revenue collected-Revenue

billed} Rs. Lac 158

Billing Efficiency % 69.05%

Collection Efficiency % 100.0%

AT&C Losses (Assessed) % 30.95%

It is envisaged that with implementation of the project the AT&C Losses shall be

reduced progressively as shown below

Base Year % 30.95%

Year-1 % 29.50%

Year-2 % 27.00%

Year-3 % 23.00%

Year-4 % 19.00%

Year-5 % 15.00%

Year-6 % 15.00%

Project IRR 38%

Payback Period 0.00

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CHAPTER 5

5.1 CONCLUSION

The project has been appraised from techno economic angle as per REC‟s appraisal procedure and

found eligible for financing. In line with the new Electricity Act 2003, techno-economic clearance

from Central Electricity Authority (CEA) and investment decision from the Planning Commission

are not required for transmission project.

Assessment of the financial feasibility of the Proposed Project, delivers satisfactory financial

parameters as per base financial model. It has also assessed the viability of the Project under

the impact of various scenarios, which could be at variance with the base case scenario

assumed.

The delivered power cost to the steel plants from power project of the same utility after factoring

the transmission cost works out much lower than the cost of power from alternate sources viz grid /

gas based power plants & the transmission system is well justified.

On the basis of business analysis, financial analysis and the management analysis of this project it

has been found that project is financially viable.

The focus of the RAPDRP programme is on actual, demonstrable performance in terms of AT&C

loss reduction. The coverage of programme is urban areas – towns and cities with population more

than 30,000 (10,000 for special category states). Private distribution utilities are not covered under

the programme and to be reviewed after two years from date of approval of R-APDRP. The

prescribed implementation period for Part A and Part B projects is 3 years from date of sanction

and 5 years respectively. Further, the repayment tenure for Part A is 10 years (including 3 years

moratorium) and for Part B is 20 years (including 5 years moratorium).

The level of AT&C losses of Amritsar City was 30.95% during the base year 2008-09. These will

be brought down to 15% in the next 6 years.

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5.2 LIMITATIONS

The development of a complete financial plan must include consideration of cash flows for

expenses and revenues, both capital and operating, on a year-by-year basis from the current year

through and beyond the design year selected for the estimation of tariff. This analysis should

examine alternative pay-as-you-go and debt financed scenarios, be conducted in year-of-

expenditure dollars, and address the underlying uncertainties associated with inflation, interest

rates, project cost (exclusive of inflation), foreign exchange rate, grant funding levels and rates of

payment, and other factors over which the project sponsor will have no direct control.

The assumptions and sources of information underlying the development of the capital and

operating cost estimates are an integral part of the financial analyses documented in this

report. Uncertainties associated with fluctuating economic conditions and other factors may result

in the actual results of the financial program varying from the projections in the financial

analyses.

Some of the major limitations and issues regarding the project appraisal are as follow:

Risk analysis depends on contracts used to allocate risk to different parties

Credit rating of the utility is based on the financial, management and business analysis.

Less credit rating in one of the three analysis directly affect the sanction of project.

The process explained in the report is the one adopted by REC for power projects appraisal

and financing. It may not be generalized in on the similar lines for projects of the other

sectors and financial institution like health, retail etc.

In case the promoter has a foreign player its individual rating by an international rating

agency can be taken as a surrogate for entity evaluation.

74

5.3 RECOMMENDATIONS

With the deficit of electricity in our country, there is need of many projects and the

exposure limit should be increased to effectively assist the new projects. The exposure

limit of some utility is going to reached, which resist REC to fund.

To minimize the risk, the extent of financing to a single project should be proportionate; it

will also affect the exposure limit for borrower or utilities and chance to fund in more projects

rather in some.

Currently REC has less % funding in generation projects, REC should also concentrate to

increase its share in power generation projects.

Nuclear power projects should be taken as a future prospect business of REC.

The entity appraisal is very detailed and sensitive part of project financing, manual work

should be replaced with good software.

With the changes in project parameters, the re-rating of project should be done at an

appropriate time and linkages of interest rate, exposure limit and security to the new

project rating should be done.

There should be more bifurcation in the linkages to integrated project rating. A detailed

and comprehensive model study should be made for accordingly.

5.4 FUTURE SCOPE

During 11th Plan, a number of 765kV lines and substations have been added and a few more

are under-construction. The trend of increasing 765kV system in the grid is going to continue

in the 12th Plan as well. A number of new 765kV lines and substations have been planned for

evacuation of bulk power .this indicates more investments in the transmission sector

HVDC transmission line system is future for this sector, that will help to strengthening of

transmission sector country.

Smart transmission Grid system is implementing in India.

RAPDRP cover assistance to state utilities and private distribution companies also.

National Electricity fund scheme -The poor state of distribution sector requires investment

for replacement of obsolete equipment and technology upgradation. Under this scheme, it was

proposed that interest subsidy would be extended to the Distribution Utilities which would be

linked to reforms. This is expected to reduce the burden of servicing the interest on the

utilities.

75

BIBLIOGRAPY

Documents

[1] REC Guidelines of financing Norms, Entity Appraisal and project appraisal for Private

Transmission projects.

[2] PFC Guideline of project Appraisal

[3] Central electricity Regulatory Commission Regulations,2009

[4] Ministry of Power Annual Report 2011-12

[5] Ministry of Power Annual Report 2010-2011

[6] Report on “The Working Group on Power for Twelfth Plan (2012-2017)”- Ministry of Power,

Government of India

[7] Guidelines for RAPDRP during XI Plan 2011-12

[8] Guideline for National Electricity Fund(Interest Subsidy Scheme)

[9] REC 42nd

Annual Report 2010-11

[10] REC 43rd

Annual Report 2011-12

[11] PFC guideline for RAPDRP

[12]Brown, R.E ,”Transmission and Distribution Conference and Exhibition”, 2005/2006 IEEE

PES

[13] Financial Management: by I.M.Pandey

Websites-

[14] www.recindia.nic.in

[15] www.powermin.nic.in

[16] www.cea.nic.in

[17] www.cercind.gov.in

[18] www.mptransco.nic.in

[19] www.ntpc.co.in

[20] www.mppgenco.nic.in

[21] www.mnre.gov.in

[22] www.essar.com

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[23] www.forumofregulators.com

[24] www.cpri.in

[25 ] www.scribd.com/doc/91071555/8/Literature-Survey

[26] www.apdrp.gov.in