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Lata Chakravarthy
Faculty Member
ICFAI Business School
Bangalore
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Objective of study
Scope of study
Sources data
Methodology
Study findings
Conclusion
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Project MoU route MoU route Bid route MoU route Bid route
awarded
through
Capital cost per Rs.4.73 cr. Rs.4.68 cr. Rs.3.02 cr. Rs.4.05 cr Rs.4 cr.
MW
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± Payment of interest on foreign currency loans
± Repayment of foreign currency loans
± Return on foreign equity
c
!"
± Payment of interest on rupee loans
± Repayment of rupee loans
± Return on rupee equity
± O&M and insurance charges
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c
MoU cases
Risk of increase in capital cost after signing of PPA (Tariff can be
based on actual higher capital cost subject to approval)
This has impact on
Interest on debt
Return on Equity
Incentive payment
Depreciation
O & M expenses
Insurance expenses
Foreign exchange variation in interest, debt repayment and ROE
Bid route cases
No such risk as a fixed amount is paid per unit of energy generated,
no matter what was the actual cost of completion of the project.
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c
MoU cases-other issues
Increased burden on utility to constantly verify
the current sources of debt- IPPs keep swapping
high cost debt with low cost debt as a cost
reduction measure.
Utility has to track the interest charged by banks
from time to time on working capital loans ±
each bank in the consortium may lend at
different rates.
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#$%
&&'
Project cost of Rs.816 crores as per TEC was
fixed as ceiling though actual completed cost was
Rs.1025 crores.
This saving of Rs.209 crores has positive impact
on all the fixed charge components ± interest,
depreciation, ROE, O & M and insurance
charges.
The levelized tariff with Rs.1025 cr. of project
cost is Rs.2.6904 per Kwh vis-à-vis Rs. 2.6275
per Kwh with Rs.816 cr. of project cost.
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#$%
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Reduction in O & M charges from 2.5% to 2% -
this reduces the payment to IPP by Rs.40.8 cr
p.a.
The effect on levelized tariff is a reduction by
2.54 paise per kwh.
The term of PPA was reduced from 30 years to
18 years by an amendment to PPA.
Amendment provided for a rebate of 2.5% to be
allowed to the utility if it settles a bill within 5
days ± reduces levelized tariff by 0.27 paise.
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c ())*)(
GVK 1.52
Spectrum 1.61
Kondapalli 1.22
Balaji 1.52
Tannirbavi 1.98
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O
+
GVK
For every 1% increase in PLF from 68.5% to 85%, .0525% of
additional ROE.
Incentive payable on notional generation also.
PPA was amended to reduce rate of incentive from .6% to
.525% and also to cap incentive payment at 85% PLF.
Effect is to reduce maximum ROE payment including
incentives to 25% from 35%. Applied to equity of
Rs.243.23 crores, this amounts to a saving of Rs.24.32 cr
p.a.
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O
Spectrum Power
Basis of payment
68.5% to 80.5% .4% for every 1% increase in PLF
80.5% to 85.5% .5% for every 1% increase in PLF
above 68.5%
> 85.5% .6% for every 1% increase in PLF
above 68.5%
Kondapalli Power
80% to 85% PLF 2% of Other Fixed Charges (OFC)
85% to 90% PLF 10% + 3% for every 1% increase in
ROE above 85%
> 90% Same as for 90% i.e 25% of OFC
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,
Example of GVK
Project cost Rs.816 cr
Entire project cost is depreciated up to 90% i.e.
Rs.734.4 cr.
Equity Rs.243.23 cr.
Amount recovered as depreciation Rs.734.40 cr
Less: debt component of project cost Rs.572.77 cr
Amount recovered towards equity Rs. 162.40 cr
Represents 66% of equity invested
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c
It is possible to bring down cost of power generated even
by existing IPPs.
IPP not a bad word!
Negotiate-benchmark against the most competitive bid
received.
Utility should set payment track record to generate
confidence among IPPs, rather than setting up payment
security mechanisms.
Set up infrastructure on priority basis to distribute gas and
convert liquid fuel based projects to gas.
Key role for regulator and utility in the entire process.
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