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 NPTI, Faridabad

Ritesh Biharilal Sarve MBA in Power Management NPTI, Faridabad

Counter Signature (Director/Principal of the institute)

ACKNOWLEDGEMENT
Words often fail to pay ones 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

ii

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 Governments 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 borrowers requirements by providing timely and prompt services and by mobilizing the funds from various sources at lowest possible cost and strive to improve the customers 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.

iii

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.

iv

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

ABBREVIATIONS AND ACRONYMS ACSR APDRP AT&C CEA CO COD CPM CPSU DPR EHT EPC EPS FI FIRR GIS GOI HT:LT HVDS IE LILO LVDS MOP MOEF NEF NHA NTPC PFC PGCIL PTCC P:SI PSPCL RAPDRP RGGVY ROW SCADA SERC STPS Aluminium Conductor with steel reinforcement Accelerated Power Development & Reform Program Aggregate Technical and Commercial Losses Central Electricity Authority (of India) Corporate Office Commercial Operation Date Chief Project Manager Central Public Sector Undertaking (India) Detailed Project Report Extra High Tension Engineering Procurement& Construction Electric Power Survey (of India) Financial Institution Financial Internal Rate of Return Geographic Information System Government of India Ratio High Tension: Low Tension Ratio High Voltage Distribution System Intensive Electrification Line in line out Low Voltage Distribution System Ministry Of Power Ministry of Environment & Forest National Electricity Fund National Highway Authority National Thermal Power Corporation Ltd Power Finance Corporation Ltd. Power Grid Corporation of India Ltd Power & Telecommunication Coordination Committee Project System Improvement Punjab State Power Corporation Ltd Restructured Accelerated Power Development & Reform Programme Rajiv Gandhi Gramin Vidyutikaran Yojana Right of way Supervisory Control and Data Acquisition State Electricity Regulatory Commission Super Thermal Power Station

vi

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 Schemes14 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
vii

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

viii

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

ix

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
1

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

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 countrys 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

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 198788, 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 RECs 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

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 Indias 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 RECs 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,

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:-

1.7 CATEGORY OF SCHEMES FINANCED UNDER T&D Table 1: Category of Schemes Financed Under T&D S.No 1 (i) Category Distribution scheme Project system Improvement: P:SI SI:Meters, Transformers, etc P:SI (HVDS) P:SI (APDRP) Project Intensive Electrification: P:IE Project Pumpsets: SPA:PE 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. To strengthen and improve the sub transmission and distribution system in the designated area. For procurement and installation of meters, transformers etc. For conversion of LVDS to HVDS For counterpart funding of APDRP schemes sanctioned by MoP To cover intensive load development for providing connections to rural consumers in already electrified Villages. For energisation of pump sets. Purpose

(ii) (iii) (iv) (v)

(vi) 2.

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

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,

10

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, preoperative 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.

11

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.

12

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. iv. v. vi.

Conversion of LVDS to HVDS. Conversion of three phase system to single phase system. Renovation & Modernisation of the existing HT and LT lines including LVDS. Regrouping of loads, bifurcation, alignment and augmentation of existing heavily loaded LT feeders and installation of energy efficient distribution transformers.

vii. viii. ix. x. xi. xii. xiii. xiv.

Provision of reliable and tamper proof meters at Consumers' premises. Provision of metering and reliable protection on LT side of distribution transformers. Provision of inter utility meters. Shunt compensation in LT system. Bifurcation, alignment and augmentation of existing heavily loaded 11 KV feeders. Provision of 11 KV automatically Switched capacitors directly on lines. Provision of 11 KV voltage boosters, sectionalisers etc. 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. xx. xxi. Metering and other Equipment for Energy audit. Replacement of worn out sub-station equipment. Study, evaluation and consultancy relating to aforesaid scope of works at S.No (i) 13

(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.

14

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 utilitys 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.

15

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.

16

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

17

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 years approval by SERC. At the time of sanctioning of a transmission scheme, schemes already sanctioned including by other FIs/utilitys own resources would also be taken cognizance of.

18

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

YES

If loan amount is less than 20 Cr

NO

Financial concurrence

Approval by screening committee

Screening Committee

Financial Concurrence If loan amount is less than 100 Cr

NO YES

Approval: By CMD

If loan amount is less than 150 Cr

NO NO

YES

Recommendation of CMD Recommendation of CMD

Approval by Executive Committee Approval by Loan Committee

If loan amount is less than 500 Cr

NO NO

YES

Recommendation of CMD

Approval: By BOD

19

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.

20

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.

21

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.

22

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 ProcessA.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 100% Method of evaluation

Market Analysis

Quantitative

23

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 Turnover of the company/turnover of the industry leader in the business Method of evaluation Quantitative analysis

The ratio so obtained is compared against the score table.

Table 4: Score Table

Market Position >0% but <=10% >10% but <=30% >30% but <=50% Greater than 50%

Indicative score 1 2 3 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 a) Review of the past financial position b) Financial flexibility Indicative weights 20% Quantitative analysis 80% Methods of evaluation

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

24

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 Return on capital employed Operating margin Debt service coverage ratio Total Debt to total Net worth Cash generation from business Indicative Weights 20% 20% 20% 20% 20% Quantitative Analysis Method of Evaluation

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 debtRevaluation 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 <=5% >5% but <=9% >5% but <=9% >5% but <=9% Inductive score 0 1.00 1.50 2.50

25

>5% but <=9% >5% but <=9% Greater than 17%

3.00 3.50 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 <=0% >0% but <=5% >5% but <=10% >10% but <=15% >15% but <=20% >20% but <=25% Greater than 25% Indicative score 0 1.50 2.00 2.50 3.00 3.50 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.

26

Table 9: DSCR DSCR range <=1.0 >1.0 but <=1.1 >1.1 but <=1.2 >1.2 but <=1.3 >1.3 but <=1.4 >1.4 but <=1.5 >1.5but<=1.75 >1.75but<=2.0 Greater than 25% Indicative score 0 1 1.50 2.00 2.5 3.00 3.25 3.50 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 borrowers 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 0-0.5 >0.5 but <=1.0 >1.0but <=1.5 >1.5 but <=2.0 >2.0 but <=2.5 Greater than 2.0 Indicative score 4.0 3.0 2.5 2.0 1.5 1.0

27

Less than 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 promoters 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 Less than 0 >0 but <=0.1 >0.1 but <=0.2 >0.2 but <=0.3 >0.3but <=0.4 >0.4but <=0.5 Greater than 0.5 Indicative score 1.0 1.5 2.0 2.5 3.0 3.5 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:

28

Table 12: Financial Flexibility Ratio to be considered Indicative Weights 60% 7.5% Quantitative analysis Method of evaluation

Equity funding potential Bridge finance ability

Track records of the funds 15% raised 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 <=0 >0.00 but <=0.50 >0.50 but <=1.00 greater than 1.00 1 2 3 4 Indicative score

29

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 Less than 0.60 >0.60 but <=1.1 >1.1 but <=1.6 >1.6 but <=2.1 >2.1 but <=2.6 > 2.6 but <=3.1 Greater than 3.1 Indicative score 1.0 1.5 2.0 2.5 3.0 3.5 4.0

30

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 Less than 0.3 >0.3 but <=0.8 >0.8 but <=1.3 >1.3 but <=1.8 >1.8 but <=2.3 > 2.3 but <=2.8 Greater than 2.8 Indicative score 1.0 1.5 2.0 2.5 3.0 3.5 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 30% 20% 30% Qualitative judgement Methods of evaluation

Organizational Experience Experience of key personnel Equipment supplier, EPC contractor and project management Experience Project preparedness of the promoters

20%

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

31

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 Possibility of talking up for detailed appraisal Yes

Grade

Comments

3.6 and Above

The fundamentally strong ability of the promoters to set up the new projects Is unlikely to be adversely affected by changes in circumstances Adverse business conditions are unlikely to affect the promoters ability to set up the new projects. Promoters ability to set up projects is less likely to be adversely affected by changes in circumstances than for lower score. Changes in circumstances are more likely to lead to weakened ability of promoters to set up the project than for higher grades.

>3.0=3.5 Grade I >2.5=3.0

Yes

Yes

>2.0=2.5

Yes

32

>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 Should not be poor capabilities are likely to lead to funded promoters lack of ability to set up the project.

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.

33

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:

34

Table 18: Business Analysis Factor to be considered Indicative weight within the Group 50% Qualitative judgement Industry analysis 50% Methods of evaluation

Market analysis

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 Review of Past Financial position Review of future financial position Financial Flexibility Indicative weights 50% Methods of evaluation

15%

Quantitative Analysis

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.

35

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 a) organizational Experience b) Experience of key personnel c) equipment supplier,EPC contractor and Project Management Experience d) project Preparedness of the Promoters Indicative weights 20% 30% 30% Qualitative judgement Method of evaluation

20%

A.2.5 Final Analysis for detailed evaluation stage Table 21: Final Analysis for Detailed Evaluation Average score obtained 3.6 and Above Grade Grade I Comments

The fundamentally strong ability of the promoters to set up the new projects Is unlikely to be adversely affected by changes in circumstances. Adverse business conditions are unlikely to affect the promoters ability to set up the new projects. Promoters ability to set up projects is less likely to be adversely affected by changes in circumstances than for lower score. Changes in circumstances are more likely to lead to weakened ability of promoters to set up the project than for higher grades. 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. Adverse business or economic conditions and poor capabilities are likely to lead to promoters lack of ability to set up the project.

>3.0=3.5

Grade II Grade III Grade IV Grade V Grade VI

>2.5=3.0

>2.0=2.5

>1.5=2.0

Below 1.5

36

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. (i) (ii)

Transmission Line 400kV D/c (QUAD conductor) Transmission Line from location A to location B sub-station LILO of existing 400kV S/c transmission line C-D at location A

Approx line length (Kms) 315 20

(iii)

400kV D/c (Twin conductor) transmission line from switchyard at location E to Location F

97

37

Table 23: Sub-station (iv) (v) (vi) (vii) (viii) (ix) (x) 3x500 MVA Transformer, 400/220kV Substation at location F 2x50 MVAR line reactor at location Bs pooling sub-station 2x50 MVAR line reactor at location A 1x80 MVAR, 420 kV switchable bus reactor at location A along with its associated 400 kV bay 2 Nos. of 400 kV line bays at location Bs pooling sub-station 2 Nos. of 400 kV line bays at location Es switchyard 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 Conductor type Conductor per phase Conductor size (mm) 400 kV D/C from A-B 400 kV D/C LILO and lines E-F Line ACSR Moose 4 (Quad Bundle) 54/3.53 Aluminium +7/3.53 Steel Overall conductor diameter (mm) Earthwire (mm) Overall EW diameter (mm) 31.77 Galvanised steel 7/3.66 10.98 ACSR Moose 2 (Twin bundle) 54/3.53 Aluminium +7/3.53 Steel 31.77 Galvanised steel 7/3.66 10.98

EPC TL PACKAGE The scope of work as envisaged under Scheme A and Scheme B.

38

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 -

39

The Scope of work is to cover the design, manufacture, assembly, testing at manufacturers 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 Item o Agency Status Remarks Location A-B/LILO/Location E-F Obtained Vide CERCs letter dated April 29,, 2008

1.

Transmission License CERC to PQR Ltd Installation of O/H trans line under Electricity Act 2003 Section 68 : MoP, GOI MoP, GoI MoEF

2.

Obtained

Vide MoPs letters dated 26.05.08

Section 164

Obtained

vide gazette notification dated 16.06.09 from MoP 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. No environmental clearance is required for transmission projects as per MoEF notification dated September 14, 2006.

3.

Forest Clearance

In process

3.

Environmental clearance

MoEF

40

S.N

Item o PTCC (Required charging)

Agency

Status

Remarks Location A-B/LILO/Location E-F

4.

Clearance PTCC before

In Process

Will be taken up during construction activity

5.

Railway Crossing (Required stringing) before

Concerne d DRM

In Process

Will be taken up during construction activity

6.

Highway Crossing (Required stringing) before

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 (Civil) (Required charging)

Authority Airport Authority of India before

In process

Will be taken up during construction activity

9.

Clearance for CEA charging (Required before charging)

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

41

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.

42

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

43

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--vis the budget, the timelines of various activities of the Project vis--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.

44

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 Managers 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 Project Cost EPC Costs Units Value Value Location F Value

45

Equipments Supply Cost ( Conductor & Insulator)

Rs. Crs

309.30

9.60

43.80

Erection & Civil Cost ( Towering & Other Rs. Crs supply) Sub Total Total EPC costs Non EPC Cost Land and Site Development Pre-Operative Expenses / Overheads Contingencies Spares included in EPC cost EPC Management Cost Sub Total Total Non EPC Cost Others 400/220KV S/S at location F Bay & Reactor at A/B Margin Money for WC Financing Charges Interest During Construction Sub Total Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Total Project Cost Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs

332.30 641.60 794.90

25.70 35.30

74.20 118.00

66.81 6.42 24.43 96.24 193.90 224.97

0.25 0.35 1.08 5.30 6.98

1.59 1.18 3.62 17.70 24.10

59.00 16.62 10.28 89.30 175.20 1,010.69 1,335 42.28 -

140.00 -

140.00 282.10

46

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 Total 934.5 1335.0 70% 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

47

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 Transmission Capacity Construction Start Date Construction Period Commercial Operations Date Useful Life Operational Till No of quarters Distance Kms MW dd-mmm-yy Months dd-mmm-yy Years dd-mmm-yy 1,200 01-Oct-08 30 31-Mar-11 25 29-Feb-36 10 315 LILO 1,200 01-Jul-09 18 31-Dec-10 25 30-Nov-35 6 20 Location F 700 01-Jul-09 21 31-Mar-11 25 29-Feb-36 7 98

Project Cost EPC Costs Equipments Supply Cost ( Conductor & Insulator)

Units

Value

Value

Value

Rs. Crs

309.30

9.60

43.80

48

Erection & Civil Cost ( Towering & Other supply) Sub Total Total EPC costs Non EPC Cost Land and Site Development Pre-Operative Expenses / Overheads Contingencies Spares included in EPC cost EPC Management Cost Sub Total Total Non EPC Cost Others 400/220KV S/S at Hazira Bay & Reactor at Mahan/Sipat Margin Money for WC Financing Charges Interest During Construction Sub Total

Rs. Crs Rs. Crs Rs. Crs

332.30 641.60 794.90

25.70 35.30

74.20 118.00

Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs

66.81 6.42 24.43 96.24 193.90 224.97

0.25 0.35 1.08 5.30 6.98

1.59 1.18 3.62 17.70 24.10

Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs Rs. Crs 59.00 16.62 10.28 89.30 175.20 1,010.69 1,335

140.00 -

42.28

140.00 282.10

Total Project Cost

Rs. Crs

Spares included in EPC cost Contingencies EPC Management Cost

% % %

0% 3% 15.00%

0% 3% 15.00%

0% 3% 15.00%

49

Means of Finance Debt-Equity Debt-Equity Ratio Debt Equity Upfront Equity Return on Equity (ROE)

Units %

Value 30% 2 70%

Rs. MM Rs. MM % %

934.5 400.5 50% 15.5%

Debt Moratorium Repayment Start Date Repayment Period Last Repayment Date Interest Rate on Rupee Term Loan DSRA Interest on W.C. Loan Margin Capital Money for

Units Months dd-mmm-yy Quarters dd-mmm-yy % Months % p.a. Working % 12

Value

31-Mar-12 48 30-Mar-24 12.50% 3 12.5% 25.0%

Interest on DSRA

% p.a.

8.0%

Generation Transmission Capacity Actual PLF Auxiliary Consumption (for Tariff)

Units MW % % of Generation % of Net Generation 1,200 85% 8.5%

Value

Power given free

7.5%

50

Availability Capacity Allocation

% % of Net Generation 30.00% to 7.50%

100% MW Net of Loss

Capacity allocated to UVWTCL Free capacity UVWTCL allocated

329.40 82.35

329.40 82.35

245.27 61.32

Capacity allocated to K Ltd

62.50% 100.00%

686.25 1098.00

686.25 1098.00

510.98 817.57

O & M Cost

Units

Value

Norms for O & M expenses per ckt-Km and per bay FY Dedicated TL Bay 2010-11 0.0099 0.5540 CERC CERC Location A&B Distance Total ckt No. of Bays O & M Cost Escalation in O&M cost % Kms 315 315 4 5.35 5.72% LILO location F

20 20 2 1.31 5.72%

98 98 13 8.17 5.72%

Working Capital Requirement O&M Expenses Receivables Maintenance Spares Escalation in Spares

Units no. of months no. of months of historical cost per annum 1 2

Value

15% of O&M exp.

51

Depreciation

Units

Value 100.00%

Total % of assets to be % depreciated Total Value of assets to be Rs. Crs depreciated Residual Value of Assets Book Depreciation Rate - SLM Building Plant and Machinery % % %

1,266.41

10%

5.28% 5.28%

Book Depreciation Rate-WDV Building Plant and Machinery % % 10.00% 15.00%

Book Depreciation Method

SLM

Tax Depreciation Rate - WDV Building Plant and Machinery % % 10.00% 15.33%

Tax Corporate Tax Rate MAT Rate Tax Holiday under Section 80IA To be claimed in

Units % %

Value 33.99% 11.33%

Years

15 10

Consecutive years in which to Years be claimed

52

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 Project cost, Rs. Crores DSCR -Minimum -Average -Maximum Project FIRR, pre-tax, 25 years B.10 PROJECT RISK ANALYSIS B.10.1 Risk Matrix Table 30: Pre-Construction S. No. 1 Risk Mitigation / Allocation 1.38 1.65 2.21 12% Value 1335.0

Grant approvals clearances

of 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.

Finalisation of All the contract bids have been evaluated and finalised by PQR Ltd. Contracts The awards are ready to be placed. A suitable pre-disbursement condition has been stipulated in this regard. Procurement of Land procurement is not involved in the proposed project. land

53

Table 31: Construction S. No. 1. Risk Construction Mitigation / Allocation 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. 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.

2.

Cost increase and price escalation beyond estimated project cost

3.

Finalisation Project Contracts Completion delay

of All the Key Contracts has been Finalised & signed with ECIL

4.

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. All equipment which shall be supplied are indigenous. The promoters 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 Groups equity holding structure.

5. 6.

Country risk Equity Infusion

Table 32: Post Construction S. No. 1. Risk Mitigation / Allocation

Regulatory risk

Tariff shall be as per CERC based on the prudence check of the Project Cost which shall be paid by the Beneficiaries. Full transmission service charges shall be recoverable at

2.

System

54

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. 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. The maintenance of the transmission lines would be the responsibility of PQR. 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. 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. Power transmission systems do not impact the environment as no emissions are involved in these Projects.

3.

Payment Security O&M Technology risk

4. 5.

6.

Force Majeure

7.

Environmental Hazards

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.

55

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 Promoters 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

56

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;

57

(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 RECs 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

58

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.
59

(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.
60

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.

61

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 Utilitys 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.

62

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 Utilitys 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.

63

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 1 Nature of work Evaluation Method

Replacement of existing HT & LTCT Electromechanical The utility shall provide consumer meters with two way (AMR compatible, open the number of such protocol) tamper proof electronic meters. For replacement of consumers. whole current electromechanical consumer meters, the guidelines of CEA shall be adopted.

64

If existing service line is prone to tamper and pilferage the The replacement of same shall be replaced with armoured or XLPE cable for service cable for which minimum configuration should be : maximum 25% consumers of the town (i) Single Phase consumers: min. 4 sq.mm may be allowed. In exceptional case the (ii) Three Phase consumers: min. 6 sq.mm quantity can be increased. Installation of new Distribution Transformers in following Each Distribution cases: Transformer of 25 KVA & above shall be (i) If the length of LT feeder is more than 300 mtr then new provided with minimum Distribution transformer may be proposed to improve HT: two LT feeders. In case LT ratio. of only one existing LT (ii) If existing peak load on DT is more than 70% of its rated feeder, scheme for laying new LT circuit may be capacity then new DT may be proposed. prepared. (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.

Provision of LT distribution box for control and protection of outgoing LT circuits. 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. 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. 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

65

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 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. 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. 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.

10

13

14

66

(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 Name of Utility (Short Name) Date of Incorporation Total Number of Utility Consumers Punjab PSEB 20-Oct-60 6631407

Previous Financial Year Billing Efficiency Collection Efficiency AT&C Losses

% % %

75.01% 100.17% 24.86%

67

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) Energy Input Energy Sales Total Revenue Billed Total Revenue Collected (including arrears) Arrears {Actual or Total Revenue collectedRevenue billed} Billing Efficiency Collection Efficiency AT&C Losses {Assessed for Base Year-0} Loss Reduction Trajectory Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Data for Previous FY 200809 2008-09 1369.61 945.69 33832 33990 158 69.05% 100.00% 30.95% Projection 29.50% 27.00% 23.00% 19.00% 15.00% 15.00%

Unit FY M Units M Units Rs. Lac Rs. Lac Rs. Lac % % % Unit % % % % % %

4.4. COMMERCIAL INFORMATION Table 36:Commercial Information Particulars Peak Demand (Met) Peak Demand (Unrestricted) Energy Input Metered Energy Sales Assessed Energy Total Energy Billed Revenue Billed Revenue collected Billing Efficiency Collection Efficiency AT&C Losses DT Failure rate (Yearly) MW MW MU MU MU MU Rs. Lac Rs. Lac % % % % FY 08-09 346.08 428.53 1369.61 940.88 4.81 945.69 33832 33832 69.05% 100.00% 30.95% 8.57 FY 07-08 330.76 413.97 1360.54 935.91 4.7 940.61 34269 34143 69.14% 99.63% 31.12% 9.93 FY 06-07 320.32 398.91 1294.21 884.28 3.27 887.55 32132 31752 68.58% 98.82% 32.23% 10.33

68

Project Cost Scheduled date of completion (Part-B Project) Energy Input AT&C Losses {Assessed for Base Year-0} 4.5 SCOPE OF WORK

Rs. Cr M Units %

246.29 31/03/2013 1369.61 30.95%

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 - Installation of remote communicable FPIs (O/C, E/F) - Installation of remote switchable breakers - Installation of new feeder - Augmentation of Conductors - Feeder Bifurcation (with proper justification) - Associated Civil Works 235 Nos. 235 Nos. 402 Nos. 89 Nos. 33 Nos. 188 Km

69

- 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 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 613 Nos

4.6 PROJECT FUNDING Table 37:Project Funding Cost Item Total Setup Cost Rs.Cr Total Cost 246.29 GoI (25%) 61.57 PFC/ FIs 184.72 Utility 0.00

4.7 PROJECT BENEFITS Table 38:Financial Benefits Base Year0 AT&C Losses % 30.95% Year-1 Year-2 Year-3 Year-4 Year-5 Year-6

29.50% 27.00% 23.00% 19.00% 15.00% 15.00%

Internal Rate of Return (IRR)

37.6%

70

4.8 PROJECT BENEFITS (AT & C LOSSES) Table 39: AT&C Losses

For the Project Area

Unit

Assessment of Existing Losses for Base Year 1369.61 945.69 33832 33990 158 69.05% 100.0% 30.95%

Energy Input Energy Sales Total Revenue Billed Total Revenue Collected (including arrears) Arrears {Actual or Total Revenue collected-Revenue billed} Billing Efficiency Collection Efficiency AT&C Losses (Assessed)

M Units M Units Rs. Lac Rs. Lac Rs. Lac % % %

It is envisaged that with implementation of the project the AT&C Losses shall be reduced progressively as shown below Base Year % 30.95% 29.50% Year-1 % 27.00% Year-2 % 23.00% Year-3 % 19.00% Year-4 % 15.00% Year-5 % 15.00% Year-6 %

Project IRR Payback Period

38% 0.00

71

CHAPTER 5 5.1 CONCLUSION The project has been appraised from techno economic angle as per RECs 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.

72

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-ofexpenditure 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.

73

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.

74

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
75

[23] www.forumofregulators.com [24] www.cpri.in [25 ] www.scribd.com/doc/91071555/8/Literature-Survey [26] www.apdrp.gov.in

76