EVALUATING TECHNO -COMMERCIAL ASPECT OF CHINESE EQUIPMENT IN INDIAN POWER SECTOR & FINANCIAL MODELING OF 600MW THERMAL POWER

PLANT
AT

SUMMER INTERNSHIP REPORT ON

SUMITTED BY :

UNDER THE GUIDENCE OF

VINEET AWASTHI MBA (Power Management) National Power Training Institute Faridabad

Mr. SARABJEET SINGH ESSAR POWER, MAHAN

Affiliated To

AUGUST 2013

ACKNOWLEDGEMENT

I am having great pleasure to present this report entitled Financial Modeling Of 600mw Thermal Power Plant & Evaluating Techno-Commercial Aspect Of Chinese Equipment In Indian Power Sector I take this opportunity to express my sincere thanks to all who contributed to make this a success. I would like to express my sincere thanks to my guide Mr. Sarajeet Singh, Astt. V.P comercial., ESSAR Power Mahan for providing me the necessary resources for carrying out the study and I would like to thank Mr. Sandeep Singh ESSAR Power Mahan for his timely and continued support. I feel deep sense of gratitude towards Mr.S.K. Chaudhary, Principal Director, CAMPS, Mrs. Indu Maheshwari, Dy. Director, NPTI and Mrs. Manju Mam, Dy. Director, NPTI for arranging my internship at ESSAR Power Mahan and being a constant source of motivation and guidance throughout the course of my internship.

I also extend my thanks to all the faculties and my batch mates in CAMPS (NPTI), for their support and guidance throughout the course of internship.

Thank you all for being there for me always.

Vineet Awasthi

ii

DECLARATION

I, Vineet Awasthi, Roll No 96, student of MBA-Power Management (2012-14) at National Power Training Institute, Faridabad hereby declare that the Summer Training Report entitled Financial

Modeling Of 600mw Thermal Power Plant & Evaluating Techno-Commercial Aspect Of Chinese Equipment In Indian Power Sector is an original work and the same has not been
submitted to any other Institute for the award of any other degree. A Seminar presentation of the Training Report was made on August 2013 and the suggestions as approved by the faculty were duly incorporated.

Presentation In-Charge (Mr. Amit Mishra )

Signature of the Candidate

Countersigned Director/Principal of the Institute

iii

iv

ABBREVIATION USED BOT = Build Operate & Transfer BTU = British thermal unit CEA = Central Electricity Authority CEC = China Electricity Council CERC = Centre Electricity & Regulatory Commission CPTIEC = China Power Technology Import and Export Company DPR = Detailed Project Report EPC = Engineering Procurement & Construction FDI = Foreign Direct Investment FIE = Foreign Invested Enterprise FSU = Former Soviet Union GDP = Gross Domestic Product GNP = Gross National Product IPR = Intellectual Property Rights IPP = Independent Power producers LOI = Letter of Intent MoEP = Ministry of Electric power, China MOU = Memoranda of Under Standing NIEs = National Intelligence Estimations of China OECD = Organization for Economic Co-operation & Development

TABLE OF CONTENT
ABOUT THE COMPANY ix

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

1. 2. 3. 4. 5. EXECUTIVE SUMMERY INTRODUCTION OBJECTIVE THE POWER SECTOR GLOBAL THE CHINESE POWER SECTOR 5.1. OVERVIEW 5.1.1. BACKGROUND 5.1.2. THE DEMAND SUPPLY SITUATION 5.1.3. ENERGY SUPPLY OPTIONS 5.1.3.1. THERMAL POWER 5.1.3.2. HYDROELECTRIC POWER 5.1.3.3. NUCLEAR POWER 6. CHINA AND INDIA COMPARISION (MACRO LEVEL) 7. CHINA AND INDIA REALITY BEHIND STATISTICS 8. INDIAN POWER EQUIPMENT SUPPLY PROBLEMS 8.1. PROBLEMS WITH BHEL 9. REASON BEHIND CHINESE SUPPLY 10. CHINESE POWER EQUIPMENT MARKET 10.1. MAJOR PLAYERS OF CHINESE POWER EQUIPMENT MARKET 10.2. EXTENDED POWER EQUIPMENT MARKET IN CHINA 10.2.1. STRONGER POWER CONSUMPTION GROWTH 10.2.2. CLOSURE OF SMALL UNIT TO TRIGGER REPLACEMENT IN CHINA 10.3. EXPORT MARKET ENTERING ON GLOBAL STAGE 10.3.1. CHINA POWER EQUIPMENT: ATTRACTIVE PRICE WITH QUALITY 10.4. A LEAP IN TECHNOLOGY 10.5. TECHNOLOGY PARTERS 10.5.1. BENEFITS FROM ENHANCED EXPORT FINANCING AND INVESTMENT 10.6. RIDE ON COAL CAPACITY RENAISSANCE 11. WHY THE CHINESE EQIPMENTS ARE CHEAPER 11.1. CHINESE GOVERNMENT POLICY TOWARDS EXPORT 11.2. WHY THE PRICES ARE SO LOW IN THE FOREIGN EXPORT MARKET 12. PROJET IN HAND WITH CHINESE PLAYERS & ISSUES WITH CHINESE EQUIPMENT SUPPLY 8 9 10 11 13 13 13 13 13 14 14 15 16 18 21 21 22 25 25 28 29 30 30 30 31 32 32 32 34 34 35 37

vi

13. ADVANTAGES OF CHINESE SUPPLY 14. SWOT ANALYSIS OF CHINESE EQUIPMENT 14.1. STRENGTHS 14.2. WEAKNESS 14.3. OPPORTUNITIES 14.4. THREATS 15. CONCLUSION

40 41 41 41 42 42 43

vii

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

1. 2. 3. 4. EXECUTIVE SUMMERY ROLE OF REGULATOR IN FORMING FINANCIAL MODELLING C.E.R.C. (TERMS & CONDITION OF TARIFF) REGULATION 2004 FINACIAL MODELLING 4.1. INTRODUCTION 4.2. NEED FOR FINANCIAL MODEL 4.3. PURPOSE OF FINANCIAL MODEL 4.4. ADVANTAGES OF FINANCIAL MODEL 4.5. APPLICATIONS FINANCIAL INDICATORS 5.1. NET PRESENT VALUE 5.2. INTERNAL RATE OF RETURN 5.3. DEBT SERVICE COVERAGE RATIO 5.4. WEIGHTED AVERAGE COST OF CAPITAL METHOD OF TARIFF DETERMINATION 6.1. PROJECT COST AND IDC CALCULATION 6.2. ASSUMTION AND INPUT SHEET 6.3. FIXED COST CALCULATION 6.4. VARIABLE OST CALCULATION 6.5. CASH FLOW STSTEMENT 6.6. PROFIT AND LOSS ACCOUNT 6.7. BALANCE SHEET 6.8. TAX SHEET LIMITATIONS BIBLIOGRAPHY 1.44 3.46 4.47 13.56 13.56 15.57 15.58 15.58 15.58 16.59 16.59 17.60 18.61 19.62 21.64 21.64 22.65 22.65 23.66 23.66 23.66 24.67 25.68 27.68 28.69

5.

6.

7. 8.

viii

ABOUT THE COMPANY

Essar is a global corporation with investments in the sectors of steel, energy (oil & gas and power), infrastructure (ports, projects & concessions) and services (shipping, telecom, realty and outsourcing and technology solutions). With operations in more than 25 countries across five continents, Essar employs over 73,000 people and has revenues of $39 Billion Essar began as a construction company in 1969 and diversified into manufacturing, services and retail. Essar is managed by Shashi Ruia Chairman, and Ravi Ruia Vice Chairman Over the last four decades, it has grown through strategic global acquisitions and partnerships, or through Greenfield and Brownfield development projects, capturing new markets and discovering new raw material sources. Today, the company has expanded its global footprint, focusing on markets in Asia, Africa, Europe and the Americas. Essar invests significantly in the latest technology to drive forward and backward integration in its businesses, and on leveraging synergies between these businesses. It also focuses on in house research and innovation to be a low-cost manufacturer with high quality products and innovative customer offerings. Alongside its ambitious business pursuits, Essar has been committed to its social responsibility. It runs community outreach initiatives in all its plant locations, with a focus on education, healthcare, environmental and agricultural development, and self-employment. Essar is committed to sustainable business practices. Our HSE (Health, Safety and Environment) management system is at par with global standards. Essar is also taking climate change initiatives to reduce its carbon footprint. This includes several CDM (Clean Development Mechanism) projects that can earn the company CER (Certified Emission Reduction) credits. A growing number of Essar's businesses are certified to international environment standards, like ISO 9001 /14001, and health and safety standards, like OHSAS 18001 Essar is widely regarded as a responsible and conscientious global employer. It has experience in managing businesses in different geographies with a culturally diverse workforce.

ESSAR
POWER Oil Project

Steel

other

ESSAR POWER Essar Energy, a first mover among the private-sector players in the Indian power industry, currently has a total installed generation capacity of 3,910 MW. Essar Energy is one of India's leading private power producers with a 15-year operating track record. The company's power business currently has seven operational power plants in India and one operational power plant in Algoma, Canada, with a total installed generation capacity of 3,910 MW. This capacity is increasing to 6,700 MW by the end of March 2014. Essar Energy also has access to approximately 500 mmt of coal resources across seven coal blocks in India and overseas.

OPERATING

Essar Power - Hazira (515 MW)

Commissioned in October 1997, the Essar Power-Hazira power plant is a multi-fuel (naphtha, high-speed diesel, natural gasoline liquid and/or natural gas) combined-cycle power plant located near the Essar Steel facility in Hazira, Gujarat. Essar Steel and GUVNL, the Gujarat State power utility, purchase 215 MW and 300 MW of the power, respectively. They are responsible for providing the fuel required at the power plant to generate the power. Vadinar Power - Jamnagar (120 MW)

The Vadinar Power power plant, located at the Vadinar refinery complex, is one of the Vadinar refinery's captive power and steam co-generation plant. The plant is a 120 MW refinery residuebased multi-fuel, captive, co-generation plant, with capacity to generate 77 MW of power and 230 tph of steam. Essar Oil provides the fuel required at the power plant to generate the power and steam for the power plant's operations. Bhander Power - Hazira (500 MW)

The Bhander Power-Hazira plant, located in Hazira, Gujarat, is a natural gas-fired combinedcycle captive power plant. The plant The Bhander Power-Hazira plant, located in Hazira, Gujarat, is a natural gas-fired combined-cycle captive power plant. The plant was commissioned
3

in 2006 and commenced full commercial operations in October 2008. Essar Steel and other Essar Affiliated Companies are responsible for providing the natural gas required by the Bhander Power- Hazira plant, and in turn take the power generated pursuant to their PPAs with Bhander Power Algoma Power Plant - Canada (85 MW)

Essar Power (Canada) (formerly Algoma Energy LLP) owns and operates the Algoma Power Plant in Ontario, Canada. This 85 MW co-generation plant was commissioned on June 13, 2009. The plant's facilities include two 375,000 pound/hour boilers and a 105 MW turbine. The power plant converts waste gases from Essar Steel, Algoma, in to electricity and steam for the steelworks. 63 MW of the power produced is sold to the Ontario Power Authority pursuant to a 20 year power purchase agreement which expires in 2029. Vadinar P1- Gujarat (380 MW)

The Vadinar P1 power plant, located at the Vadinar refinery complex, is the Vadinar refinery's second captive power plant. This plant is a 380 MW natural gas-fired combined- cycle plant. This plant was the first to be commissioned since the Company's IPO in May 2010. Essar Oil provides the fuel required at the power plant to generate the power and steam for the power plant's operations. Salaya I - Gujarat (1,200 MW)

The Salaya I power plant, located near Essar Oil's refinery complex at Vadinar, Jamnagar district, Gujarat, is an imported coalfueled thermal power plant with two 600-MW generation units. Salaya I Unit 1 (600 MW) starts commercial operations from April 2012. Coal for the plant will be extracted from Essar Energy's captive coal mine in Indonesia. Vadinar P2 - Gujarat (510 MW)

Vadinar P2 power plant consists of a multi-fuel (coal, naphtha, light cycle oil, clarified slurry oil and furnace oil) co-generation power plant with 325 MW of power capacity and 900 tons per hour (tph) of steam capacity. Steam from the facility will be provided to Essar Oil's Vadinar

refinery and power supplied to Essar Oil, Essar Steel and the merchant market. Fuel for Vadinar P2 will be provided by Essar Oil and Essar Steel in line with their purchase requirements .Mahan I - Madhya Pradesh (Unit I - 600 Mw)

The Mahan I power plant is a 1,200 MW (2x600 MW) captive coal-fired pit-head power plant located in Singrauli district, Madhya Pradesh. Mahan I Unit I synchronised and began commercial operations in December 2012. Coal for the plant will be supplied from the Mahan captive coal block located approximately 5 km from the power plant site.

UNDER CONSTRUCTION

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

The Mahan I Unit II is a part of Mahan I power plant which is a 1,200 MW (2x600 MW) captive coal-fired pit-head power plant located in Singrauli district, Madhya Pradesh. Coal for the plant will be supplied from the Mahan captive coal block.

Hazira II - Gujarat (270 MW)

The Hazira II power plant, located at Hazira, Gujarat, will be fueled predominantly by imported coal and corex gas and fines from the adjacent Essar Steel corex plant and comprises two generation units of 135-MW capacity. Power from the plant will be supplied back to Essar Steel.

Paradip - Orissa (120 MW)

The Paradip power plant will be a coal-fired power plant comprising four generation units of 30 MW each located in Paradip, Orissa. Paradip is a well-equipped and serviced port, an advantage for the supply of imported coal. Power from the plant will be supplied to Essar Steel. Tori I - Jharkhand (1,200 MW)

The Tori I power plant will be a captive pit-head coal-fired power plant, comprising two generation units of 600 MW capacity each, located in Latehar district, Jharkhand. Fuel for the project will be sourced from the Chakla and Ashok Karkata captive coal blocks owned by the company. These blocks are currently under development and proceeding through their respective clearance processes. Tori II - Jharkhand (600 MW)

The Tori II power plant is a 600 MW expansion of the Tori I power project. Essar Power Jharkhand has acquired the land for the project and the single boiler, turbine, generator unit. The Company expects to fuel the expansion project from the coal mines already allocated to it at Chakla and Ashok Karkata.

COAL RESERVES Mahan Coal Block

The Mahan coal block is located in Singrauli district in Madhya Pradesh. It has an estimated reserve of 125 mt and is operated by Mahan Coal Ltd which is a 50:50 joint venture between Essar Power and Hindalco. The off take ratio between Essar Power and Hindalco is in the ratio of 60:40. The mine has an approved annual production of 8.5 mt. The coal extracted from this mine will be used by the Mahan 1 power plant. Amelia Coal Mine

In September 2011, the Company secured a second coal source for the Mahan I project when it was allocated a share of the coal from the Amelia Coal block by the Madhya Pradesh state
6

government. Essar Power and another company were jointly allocated 20% of the coal from Amelia which will be operated by the Madhya Pradesh State Mining Corporation. Amelia is estimated to have around 287 million tonnes of coal reserves, according to the Ministry of Coal. The Amelia block is in the approvals stage. Chakla Coal Block

The Chakla Coal Block is located in Jharkhand and has an estimate reserve of 71mt. The coal from this mine will be used in the Tori I and Tori II power plants. Essar Power has a 100% allocation of this coal block. This mine is still in the approvals stage. Ashok Karkata Coal Block

The Chakla Coal Block is located in Jharkhand and has an estimate reserve of 100 mt. The coal from this mine will be used in the Tori I and Tori II power plants. Essar Power has a 100% allocation of this coal block. This mine is still in the approvals stage. Rampia Coal Block

The Rampia Coal Block is located in Orissa and Essar Power's share of this block has an estimate reserve of 112 mt. The coal from this mine will be used in the Navabharat power plant. This mine is still in the approvals stage. Aries Coal Mine

The Aries Coal Mine is situated in Indonesia. It was acquired in April 2010 for US$ 118 Mn. It is a JORC resource with a 2P reserves of 72 mt with a potential production of 4 million tonnes per annum. This mine is currently under development and has received 'in principal' Panjam Pakai forest approval. The coal extracted from this mine will be used in Salaya I power plant. Mozambique Coal Mine

The Mozambique coal mine is located in the Tete district in Mozambique. It has an estimated mineable reserves of 35 mt. This mine is under development. The coal extracted from this mine will be used in the Salaya I power plant.