Financial modeling

2.  Introduction
 Company Profile
 Objective & Scope of Project
 Project Appraisal & Financial
Modelling
 Risk Analysis
 SWOT Analysis
 Conclusion

3. Introduction
 Electricity plays a vital role in economic development of any
country.
 The demand of electricity is enormous and growing steadily
when we consider countries like India.
 In India, since independence there is a steep increase in
capacity of electricity generation.
 Currently, India stands as the fifth largest electricity generation
capacity in the world pegged at 3,88,134 MW.
 In India, Power is primarily generated from thermal, nuclear
fuels, hydro energy and renewable sources.
 Inadequate supply of domestic coal, domestic natural gas, land
availability, etc. are the major issues in the Indian power sector.
 Government has encouraged private sector players to
participate in power sector through PPP mode with up to 100%
foreign equity under automatic route.
 The State Government should be proactive in promoting
distribution channels to bring down the decreasing aggregate
technical & commercial losses.

4. Company Profile
 Power Finance Corporation Ltd. was incorporated in1986 as
a Development Public Financial Institution.
 It is dedicated to Power Sector. It is wholly owned by
Government of India.
 It provides financial assistance to all types of power projects
i.e. Generation, R&M, Transmission, Distribution, System
Improvement, etc.
 It's mission is to excel as a pivotal developmental financial
institution in the power sector committed to the integrated
development of the power and associated sectors by
channelling the resources and providing financial,
technological and managerial services for ensuring the
development of economic, reliable and efficient systems and
institutions.
 It had been awarded with Sovereign Rating by International
Rating Agencies and also been awarded with the highest
safety rating by Accredited Rating Agencies in India.

5.  It’s main objective is to rise the resources from international
and domestic sources at the competitive rate and terms and
conditions, to act as catalyst to bring institutional, managerial,
operational and financial improvement in the functioning of
the state power utilities, etc.
 State Electricity Boards, State Power Utilities, State
Electricity/Power Department, Central Power Utilities, etc. are
the clients of PFC.
 It offers various range of services i.e. Fund Based Service
such as Rupee Term Loan, Foreign Currency Term Loan,
Buyer’s Line of Credit, etc. and Non-Fund Based Services
such as Guarantees and Exchange Risk Management.
 It is providing financial assistance to reform-minded States
under relaxed lending criteria/exposure limit norms.
 It also provides technical/financial assistance to State
Govt./Power Utilities for structural reforms of the State Power
Sector.

6. Objective of Project
The objective of the Project Report is:
 Finding out the factors affecting a project’s capital and
operational expenditure which directly impact on the cash
outlay and revenue generation of the project. Thus,
performing Project Appraisal of a 660 MW Coal Based Super-
critical Thermal Power Plant.
 A financial model of a 660 MW Coal Based Super-critical
Thermal Power Project so as to study the effect of above
factors on tariff and revenue flows.
 To find out probable values of IRR, DSCR among other ratios
using the financial model to study the feasibility and
attractiveness of a 660 MW Coal Based Super- critical
Thermal Project.

7. Scope of Project
 Scope of project highlights installation, commissioning,
operation and maintenance of 660 MW coal fired Thermal
Power Plant and associated systems.
 Indian Power Sector wants to increase the level of the
installed capacity to meet the growing demand. This project
provides us the factors that will affect the project cost and
thus have an impact on the total investment and operational
expenses of the project.
 The assessment and analysis of these factors will help in
determining the project cost, the associated risks and the
tariff for supply from the project and thus the revenue
generations and cash flows.

8. Project Appraisal
 The Guiding Principal for Project Appraisal at PFC is “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, PFC assigns integrated ratings. These credit
ratings are used to fix the interest rate, exposure limit and
security criteria.”
 The major criteria's to be fulfilled for obtaining any project
financing under PFC are as follows:
I. Entity Eligibility Criteria
II. Statutory Clearances
III. Cost Estimate
IV. Project Cost-Benefit Analysis
V. Project Analysis

9. Financial Modelling
 In every project finance deal, where everyone’s financial security
based on the future performance of a new undertaking, a
thorough analysis of the project’s finances under a arrange of
assumptions is prerequisite for arranging debt and equity
funding, financial model play a critical role in decision-making.
 Determining the scope of the project and the related EPC cost,
O&M cost through the concession period, assessment of tariff in
order to determine revenue generation potential for the project,
calculating the fixed and variable cost relating to the project, etc.
are the steps taken for designing a financial model.
 The purpose of Financial Modelling provides a basic analysis,
generally rests on raw, preliminary data and simplified financing
assumptions, to establish weather a given project is worth
pursuing further. The required outcomes may be: -
I. Basic Project IRR
II. Debt Service Coverage Ratios and other debt ratios
III. Developing a financial structure that is suitable for the
project

10. Risk Analysis
The following risk involved in the different stages of the
construction of a Project are: -
 Pre Construction Stage
1. Grant of Approvals/Clearances
2. Finalization of Contracts
3. Procurement of Land
 Construction Stage
1. Cost Estimate
2. Cost increase and Price Escalation
3. Completion Delay and Equipment Supply Delay
4. Equity Infusion

11.  Post Construction Stage
1. Fuel Supply risk
2. Fuel Price Risk
3. Performance Shortfall
4. Technology Risk
5. Price Risk
6. Payment risk
7. Environment Hazards
8. Lower Cost power Producers

12. SWOT Analysis
Strength
 The Project has long term fuel supply agreement with Coal
India Limited of Coal for use in the Project.
 The Project is located in severe power shortage region.
 The Company has already acquired 600 Ha land which is
adequate for the main power plant block.
 The Project is rested on Super Critical Technology which is
expected to provide efficiency gains to the Company resulting
in lower cost of generation.
Weakness
 Company shall be selling 30% of power on Merchant Basis
and may get lower return than the levelized cost of
generation.
 Environment and Forest Clearances still to be obtained.

13. Opportunity
 The Electricity Act 2003 and subsequent National Electricity
Policy and Tariff Policy have opened up several opportunities
for the power sector by allowing the IPPs and captive power
producers open access to transmission system, thus allowing
them to bypass the SEBs and sell power directly to bulk
consumers.
 With the advent of the era of competitive bidding for tariff for
procurement of power, the new capacities would not be
subject to regulated tariff and regulated return of equity and
thus provide investment opportunities to Developers in the
power sector where returns would be market determined.
 There is huge power deficit in the country and the demand
supply situation in the country is expected to remain favorable
to power generators for the next 8/10 years at least. This
presents huge opportunities in the power sector for power
generators.
Threats
 A part of power generated will be sold on Merchant basis and
may get lower return than the levelized cost of generation.
 Fuel supply agreement with Coal India Limited may result in
delay.

14. Limitation
Some of the major limitations and issues regarding the project
appraisal are as follows: -
 The rate of escalation is taken as constant over the life of the
project i.e. about 25 years.
 Cash flows not really known until the project is in service.
 Value of debt and equity driven by cash flow.
 Measure the value of different securities supported by project
cash flow.
 Risk analysis depends on contracts used to allocate risk to
different parties.

15. Conclusion
Company has proposed to set-up 660 MW Coal fired Thermal Power
Project based on Super Critical Technology. State Government has
supported this Project and has issued letter of support to provide all kind of
administrative support required.
The Company has already acquired the land required for the Main plant
from Industrial Development Corporation and has made the requisite
payments. The remaining required land has been identified and the
process of acquisition is underway.
The Proposed Project will be implemented by way of a turnkey
Engineering, Procurement and Construction (EPC) contract to be awarded
on Competitive Bidding Process.
The Project requires about 3771700 TPA coal based on average GCV of
3400 kcal/kg and PLF of 85%. The company made an FSA with CIL for the
Proposed Project. The Project will require about 150 cubic meter per hour
make-up water during operation. A raw water reservoir of 25200m3
capacity to hold 7 days requirement for plant requirement of water will be
constructed at the plant site.

16. Of the total 462 MW of power is proposed to be sold as PPA as per CERC
tariff. Balance 198 MW will be sold on Merchant basis at Rs 3.5 per unit
with an escalation of 3% p.a. Considering the cost of generation of Rs.
2.475 per unit, company does not envisage any difficulties in selling the
power through merchant route. Power Evacuation will be through two
double circuit 400 KV transmission lines connecting the Project to the
PGCIL substation and State TRANSCO substation.

17. Thank You