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Conducting

Project
Appraisal in
Power Sector
Varun Goel

Indian Institute Of
Te c h n o l o g y, R o o r k e e
Uttaranchal,

India

varungoelmzn@gmail.co
m

24/07/2010

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This report is about the study of appraisal of the project


with respect to the statutory clearances, funding
arrangements, risk analysis and mitigation mechanism,
financial analysis and computation of key financial
parameters like Project IRR and Equity IRR. The scope
of work included preparing of a standard financial
model that could be used for financial appraisal of
projects and preparation of template used for
financial appraisal report. The client for which
financial appraisal was done involved one of the largest
transmission utilities in the world, a Navratna Public
Sector Enterprise.

LETTER OF TRANSMITTAL

I, Varun Goel, acknowledge the submission of my project on Conducting Project Appraisal in Power
Sector to my project head and thanks IMaCS for giving this opportunity to work with them on this
project. I trust that I have tried to incorporate most of the relevant issues in the study.

The exercise was done to study the appraisal of the project with respect to the statutory clearances,
funding arrangements, risk analysis and mitigation mechanism, financial analysis and computation of key
financial parameters like Project IRR and Equity IRR. The scope of work included preparing of a
standard financial model that could be used for financial appraisal of projects and preparation of template
used for financial appraisal report. The client for which financial appraisal was conducted involved one of
the largest transmission utilities in the world, a Navratna Public Sector Enterprise.

However, a further research on the above topic by a specialized committee is warranted to suggest
improvements thereof.

VARUN GOEL

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ACKNOWLEDGEMENT

I would like to express my gratitude to Mr. Ramandeep Singh, Project Manager, Energy Practice,
IMaCS Noida for providing me an opportunity to work in ICRA Management Consultancy Services,
Noida and make it a very memorable experience.
I would like to express my heartfelt appreciation and gratitude to my project head Mr. Kashif Nisar
Khan, Senior Analyst, Energy Practice, IMaCS Noida. This project is a result of his teaching,
encouragement and inputs in the numerous meetings he had with me, despite his busy schedule.
I would also like to thank all the other departmental members for their constant support, continued
encouragement and guidance throughout my training period.
Finally, I would like to thank my Institute, IIT Roorkee for making this experience of summer training in
an esteemed organization like RBI possible. The learning from this experience has been immense and
would be cherished throughout life.

VARUN GOEL

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Table of Contents
EXECUTIVE SUMMARY...........................................................................................................................................8
ABOUT THE COMPANY...........................................................................................................................................9
ABOUT THE CLIENT...............................................................................................................................................14
Operational Performance OF XYZ...........................................................................................................................14
Financial Performance OF XYZ...............................................................................................................................16
BACKGROUND OF PROJECT...............................................................................................................................18
Scope of Work...........................................................................................................................................................18
Information source....................................................................................................................................................18
CURRENT CHANGES IN POLICY/REGULATORY SCENARIO IN THE TRANSMISSION SECTOR.....19
General......................................................................................................................................................................19
Recent Changes in the Regulations in the Transmission sector................................................................................19
Existing Contractual Arrangement............................................................................................................................20
The proposed Contractual Arrangement...................................................................................................................21
PROJECT DETAILS..................................................................................................................................................26
Status of Project Clearances......................................................................................................................................28
IMPLEMENTATION AND FINANCING PLAN...................................................................................................31
Project Cost...............................................................................................................................................................31
Analysis of the cost estimates...................................................................................................................................34
Issues in the current methodology........................................................................................................................35
Financing Plan..........................................................................................................................................................36
FINANCIAL ANALYSIS...........................................................................................................................................37
Sources of Revenue...................................................................................................................................................37
Base Case Assumptions............................................................................................................................................37
Sensitivity Analysis...................................................................................................................................................39
KEY CHALLENGES & MITIGATION STRATEGIES........................................................................................43

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CONCLUSIONS AND RECOMMENDATIONS....................................................................................................54


Key concerns.............................................................................................................................................................54
Recommendations.....................................................................................................................................................55
ANNEXURES..............................................................................................................................................................56
Annexure A: Detailed Financial Statements (Base Case).........................................................................................56
Annexure-B : Detailed Implementation Plan............................................................................................................60
Annexure-C: Central Regulatory Commission (Terms & Conditions Of Tariff) Regulations, 2009.......................62
Annexure-D: Overview of Market Scenario for 765 kV equipment market............................................................65

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List of Tables
Table 1: Operational Performance of XYZ over the years..................................................................16
Table 2: Financial Performance of XYZ over the years.....................................................................17
Table 3: Comparison of Contractual Provisions...............................................................................23
Table 4: List of Generation Plants seeking Long Term Open Access in Orissa........................................26
Table 5: Details of the Proposed Transmission System......................................................................27
Table 6: Status of project clearances.............................................................................................28
Table 7: Status of key agreements.................................................................................................29
Table 8: Project Completion Milestones......................................................................................... 31
Table 9: Detailed Project cost....................................................................................................... 31
Table 10: Category Wise Project cost............................................................................................. 33
Table 11: Phasing of capital expenditure........................................................................................33
Table 12: Capital structure.......................................................................................................... 36
Table 13: Assumptions for calculating returns.................................................................................37
Table 14: Sensitivity Analysis....................................................................................................... 39
Table 15: Key Challenges in Project Execution................................................................................43

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List of abbreviations
BPTA
CERC

:
:

Bulk Power Transmission Agreement


Central Electricity Regulatory Commission

CPI

Consumer Price Index

CST

Central Sales Tax

CUSA

Connection and Use of Service Agreement

D/C

Double Circuit

DFR

Detailed Feasibility Report

ER

Eastern Region

F&I

Freight and Insurance

GoI

Government of India

IA

Indemnity Agreement

IDC

Interest During Construction

IMaCS

ICRA Management Consulting Services Limited

IT

Income Tax

kV

Kilo Volt

LILO

Loop In Loop Out

LOA

Letter of Award

MAT

Minimum Alternate Tax

MoEF

Ministry of Environment and Forest

MVA

Mega Volt Ampere

MVAR

Mega Volt Ampere Reactive

NR

Northern Region

PAT

Profit After Tax

PBIT

Profit Before Interest and Tax

PBITDA

Profit Before Interest, Tax, Depreciation and Amortization

POWERGRID

Power Grid Corporation of India Limited

RBI

Reserve Bank of India

ROCE

Return on Capital Employed

ROE

Return on Equity

RONW

Return on Networth

S/C

Single Circuit

S/S

Substation

SLM

Straight Line Method

WDV

Written Down Value

WPI

Wholesale Price Index

WR

Western Region

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EXECUTIVE SUMMARY

OBJECTIVE OF THE PROJECT


The purpose of the project was to study the appraisal of the project with respect
to the statutory clearances, funding arrangements, risk analysis and mitigation
mechanism, financial analysis and computation of key financial parameters like
Project IRR and Equity IRR. The scope of work included preparing of a standard
financial model that could be used for financial appraisal of projects and
preparation of template used for financial appraisal report. The client for which
financial appraisal was conducted involved one of the largest transmission
utilities in the world, a Navratna Public Sector Enterprise.

APPROACH:
First requirement gathering was done from the client. Then, Detailed Feasibility
Report of the project prepared by client was studied. Many queries were raised
and information was obtained from the client verbally and via written
submissions. IMaCS also examined the data available in public domain and the
sources considered reliable by it.

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ABOUT THE COMPANY

IMaCS - An Introduction
ICRA Management Consulting Services Limited (IMaCS) is a multi-line
management/development consulting firm headquartered in India. IMaCS has an
established track record of 15 years in consulting and a diversified client base
across various sectors and countries. IMaCS has completed over 1000 consulting
assignments and has worked in over 35 countries across the globe.
ICRA Management Consulting Services Limited (IMaCS) is a fully-owned
subsidiary of ICRA Limited (ICRA), one of Indias leading credit rating
agencies. IMaCS operated as a division of ICRA till March 2005, when it was demerged from ICRA and became a standalone company. IMaCS clientele includes
multilateral and bilateral agencies, banks & financial institutions, manufacturing
and service organizations, Governments, Government-owned organizations,
investors, and regulators.

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About Group ICRA


Launched in 1991 in India, ICRA has been set up by a number of prominent
Indian financial institutions, banks, and insurance companies. In September
2001, Moodys Investment Company India (Private) Limited, a 100% subsidiary
of Moodys Investors Service, USA, became the single largest shareholder in
ICRA.

Group ICRA comprises three businesses: Credit Rating, Management Consulting


and IT/BPO services, offered by four different companies comprising ICRA and
its three subsidiaries, namely, IMaCS, ICRA Techno Analytics Ltd. (ICTEAS)
and ICRA Online Limited. ICRA is listed on the National Stock Exchange and
the Bombay Stock Exchange in Mumbai, India.
The main driver for IMaCS growth has been a growing need for unbiased and
professional views on adopting best business practices arising from economic
deregulation, growing international trade & integration, and the increasing need
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to be globally competitive. Building on a carefully nurtured knowledge bank of


global benchmarks for business and management practices and a repository of
high-quality analytical talent, IMaCS has executed over 1000 consulting
assignments for a variety of Indian and international organisations, Governments,
and regulatory authorities.
IMaCS clientele includes banks, financial institutions, non-banking financial
companies, manufacturing and services organizations, governments, governmentowned organizations, debt and equity investors, regulators, and multilateral
agencies. IMaCS has executed assignments for multilateral agencies such as The
World Bank, World Bank Institute (WBI), Commonwealth Development
Corporation (CDC), United Nations Development Programme (UNDP), United
States Agency for International Development (USAID), Department for
International Development (DfID), African Development Bank (AfDB), Asian
Development Bank (ADB) and International Finance Corporation (IFC).

IMaCS Business Groups and Practice Areas


The different business groups and practice areas within IMaCS form its matrix of
service offerings. Multi-disciplinary teams are used on most assignments. The
diversity of experience in IMaCS teams

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helps it to adopt a creative and cross-functional approach to problem solving,


which has not only been very successful in practice, but has also been well
appreciated by all IMaCS clients.
Most consultants at IMaCS have advanced academic degree in various
disciplines and many have gained experience in reputed firms prior to coming to
IMaCS. Both freshers and experienced consultants undergo formal and informal
training in IMaCS to deliver high quality and implementable solutions to clients.
IMaCS clients also have the benefit of the considerable organisational expertise
that IMaCS has built up over the past ten years.

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As such, IMaCS functional expertise spans the following areas, wherein


IMaCS has built a diversified client base across verticals...

IMaCS Consulting Services in the Power


Sector
The Energy Group of IMaCS is a leading provider of policy and regulatory
consulting, transaction advisory services to all stakeholders in the power sector.
IMaCS provide a broad spectrum of consulting services that enhance and
complement each other, bringing substantial added value for its clients. IMaCS
clients also have the benefit of the considerable organisational expertise that both
ICRA and IMaCS have built up over the last so many years. IMaCS maintains an
extensive in-house database on national and international developments, key
trends, and best practices.

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IMaCS offer a portfolio of reform and regulatory support strategies, analyses,


operations consulting, corporate strategies, risk management services, investment
and transaction assistance, and implementation tools to both public and private
sector clients. IMaCS clients include public and private sector utilities, power
developers, investors, financial service organisations, industry associations,
governments/government

organisations,

regulatory

authorities,

and

multilateral/bilateral agencies.
IMaCS objective is to help its clients become more competitive, effective, and
successful in their lines of activity. IMaCS is committed to working in close
partnership with its clients to achieve the agreed goals and to deliver quality in its
work. To achieve this objective, IMaCS rely on the abilities of our consultants,
selected for their extensive technical skills and depth of practical experience.
IMaCS consultants are an outstanding group of professionals with experience in
business, economics, finance, statistics and engineering. The diversity of
academic background and practical experience that they bring to each assignment
helps them adopt a creative and cross-functional approach to problem solving an approach that not has an excellent track record of success but also of client
appreciation. All IMaCS consultants are trained to deliver high-quality practical
solutions to clients.
IMaCS offers its services in the power sector along four functional areas as
shown below.

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ABOUT THE CLIENT


XYZ (name changed as requested by IMaCS) is one of the largest transmission
utilities in the world and is a Navratna Public Sector Enterprise. It is designated
as the Central Transmission Utility (CTU) and wheels about 50% of the total
power generated in the country and owns around 40% of the total transmission
network of the country. As on March 31, 2010 it has established a Transmission
network of about 75289 Circuit kms of Transmission network and 124 nos. of
EHVAC & HVDC sub-stations with a total transformation capacity of 89,000
MVA. XYZ has consistently maintained the transmission system availability
over 99 % which is at par with the International Utilities.
XYZ was incorporated in October 1989 with the responsibility of planning,
executing, owning, operating and maintaining high voltage transmission system
in the country.
In 1994, XYZ was entrusted with the operation of the RLDCs (regional load
dispatch centres) in each of the five regions for power transmission and
regulation.
XYZ has diversified into the telecommunications business and own and operate a
fiber-optic cable network for telecom business in India. XYZ has already
established a base telecom network of over 21500 kilometers long fiber-optic
cable network connecting over 110 Indian cities, including all major metropolitan
areas.
XYZ is also into the consultancy business and it has bagged number of
consultancy assignments in domestic and international projects. It was listed both
at the Bombay Stock Exchange and National Stock Exchange in October 2007 to
raise money for expansion plans.
OPERATIONAL PERFORMANCE OF XYZ
XYZ`s network, as at March 31, 2010, comprises of about 75289circuit km of
high voltage transmission lines and 124 sub-stations spread across the country.

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For optimum utilization of the available natural resources in the country, the
National Grid is being established by XYZ in a phased manner as a part of which
a number of inter-regional links have already been implemented/ planned. The
inter-regional power transfer capacity of National Grid has been enhanced to
about 20,800 MW from 17,000 MW in FY 2007-08. XYZ has further plans to
enhance the capacity to more than 32,500 MW by 2012.
XYZ has envisaged an investment program of Rs. 55,000 Crore towards
investment in transmission projects during the Government of Indias Eleventh
Five Year Plan beginning April 1, 2007 and ending on March 31, 2012. During
first 3 years of XI plan, Rs. 25,409 Crore (46% of planned investment) has
already been made. About Rs. 28,000 Crore of Capital Expenditure is planned to
be made in the next two years.
In FY 2009-10, XYZ has commissioned/ made ready for commissioning of about
5,515 ckms of transmission lines. This year 11 new sub-stations have been
completed. XYZ has installed 22 nos. transformers and added transformation
capacity of 10290 MVA.
The major projects commissioned during 2009-10 include, Barh transmission
system (Part), Supplementary transmission system associated with Sipat-II (Part),
transmission system associated with Koldam HEP (Part), transmission system
associated with Nayveli-II Exp, Kudankulam APP, (Part), Northern Region
System Strengthening Scheme-V, etc
In the eighth, ninth and tenth five year plans, it had added

9,724 circuit

kilometres, 12,436 circuit kilometres and 19,172 circuit kilometres of


transmission lines and 17, 14 and 36 sub-stations, respectively.
During the XI Plan, the total transmission lines addition planned is about 35,600
ckm. During the first three years of XI Plan, about 18,500 Ckm (51.9%) of
transmission lines already added. Additionally, about 17,250 Ckm of
Transmission Lines are planned to be added in the next two years. Similarly, the
transformation capacity addition planned is about 54,000 MVA. During the first
three years of XI Plan, about 30,400 MVA (56.3%) already added and about
23,700 MVA of transformation capacity is planned to be added in the next two
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years. About 45-50 Sub-stations are planned to be added. During the first three
years of XI Plan, 29 substations (64.4%) have already been added while further
15 Sub-stations are planned to be added in the next two years.
In 2009-10, investment approval has been accorded by Board of Directors of
XYZ for 14 new transmission projects with an estimated cost of about Rs. 13450
Crore comprising of 6504 ckms of transmission lines and 20 no. sub-stations
with transformation capacity of about 27,825 MVA and implementation of
these projects has also commenced. Major projects include 765 KV System for
Central Part of Northern Grid - Part-II & Part-III, Transmission System of
VindhyachalIV (1000MW) and RihandIII (1000MW) Generation Projects,
Mauda Transmission System, Immediate evacuation system for Nabinagar TPS
(1000 MW), System Strengthening in Northern Region for Sasan & Mundra
Ultra Mega Power Projects, Northern Regional Transmission Strengthening
Scheme amongst others.
A snapshot of the various operational parameters of XYZ over the last 5 years is
given below:
Table 1: Operational Performance of XYZ over the years
Year

2005

2006

2007

2008

2009

Transmission Network (c-km)

50,745

55,120

59,461

67,000

71,500

Substations (number)

85

93

104

111

120

Transformation Capacity (MVA)

49,442

54,377

59,417

73100

79,500

System Availability (%)

99.74

99.64

99.20

99.52

99.55

Source: XYZ Annual Reports

As on April 01, 2010 XYZ has established a Transmission network of about


77,000 Circuit Kms of and 131 nos. of EHVAC & HVDC sub-stations with a
total transformation capacity of 89,000 MVA.
FINANCIAL PERFORMANCE OF XYZ
XYZ has been witnessing consistent growth in its revenues and income over the
last five years. Being the sole CTU, its business growth reflects the growth of the
Indian energy sector and the overall economy in general. Given that the
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transmission business involves investment in capital intensive assets with long


term stable returns, XYZs business is relatively stable with low level of cyclical
risks unlike certain other sectors.
In FY 2008-09, XYZ generated a total income of Rs. 70,285.40 million and profit
after tax of Rs. 16,906.10 million. In FY 2008-09, transmission and transmissionrelated activities constituted around 94% of total income, with the balance
coming from consulting, telecommunication businesses and other incomes.
XYZ has shown a CAGR of 26% in the top-line, 26% in EBITDA & 21% in the
bottom line in the last five years. XYZ achieved a 38.3% growth in net sales in
2008-09 and 16.7% growth in PAT over the previous year.
The following tables set forth financial information for the fiscal years ended
March 31st.

Table 2: Financial Performance of XYZ over the years


Year

2004-05

2005-06

2006-07

2007-08

2008-09

Paid-up Equity

3204.06

3623.44

3826.22

4208.84

4208.84

Networth

8617.02

9708.30

10687.57

13500.18

14618.09

Capital Employed

15482.07

16467.12

18870.13

25516.15

28430.04

Gross Block

21930.56

24888.25

29014.63

35417.14

40319.33

Total turnover

2831.28

3554.31

4097.15

5081.53

7028.54

PAT

785.52

1008.93

1229.37

1448.47

1690.61

ROCE (%)

5.07

6.13

6.51

5.68

5.95

RONW (%)

9.12

10.39

11.50

10.73

11.57

(All figures in Rs Cr)


Annual Reports

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Source:

XYZ

BACKGROUND OF PROJECT
The Central Indian Region, especially the States of Orissa, Jharkhand and
Chhattisgarh are endowed with large coal reserves as a result of which a number
of coal based generation projects are being set up in these States. As the major
demand centres of electricity are located in the Northern and Western Regions of
the country, hence the surplus power from these regions needs to be transmitted
to the power deficit states in Northern and Western regions. In order to take care
of the needs of power evacuation from the generating stations being set up in the
state of Chhattisgarh, XYZ has prepared a comprehensive transmission system
scheme for transfer of power from Chattisgarh to Northern /Western Regions.
XYZ has appointed ICRA Management Consulting Services Limited (IMaCS) to
carry out financial appraisal of the Project in order to assist it in taking the
investment decision.
SCOPE OF WORK
The Scope of the works encompasses appraisal of the project with respect to the
statutory clearances, funding arrangements, risk analysis and mitigation
mechanism, financial analysis and computation of key financial parameters like
Project IRR and Equity IRR.
INFORMATION SOURCE
IMaCS has examined following documents provided by XYZ for appraising the
project:
a)
b)
c)

Detailed Feasibility Report the project prepared by XYZ;


Updated cost estimates as per 1st quarter of 2010 price level;
Data available in public domain and the sources considered reliable by

IMaCS; and
d)
Verbal and written submissions by XYZ officials in response to the
queries raised by IMaCS.

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CURRENT CHANGES IN POLICY/REGULATORY SCENARIO


IN THE TRANSMISSION SECTOR

GENERAL
At present XYZ is the largest transmission utility and the owner of the inter-state
transmission system in India and is likely to remain so in the foreseeable future.
Going ahead, the Government has announced ambitious plan to add around
78,700 MW of additional generation capacity by the year 2012 in order to realize
the vision of Power to All by 2012. It is proposed to add this capacity through
Central Power Utilities, State Power Utilities and private investors. The
transmission system to evacuate the above quantum of power shall be taken up
by XYZ, the State Power/Transmission Utilities and private investors, with the
bulk of this quantum being undertaken by XYZ. The requirement for
transmission system, at 220kV, 400kV, 765kV and HVDC, has been estimated to
be of the order of Rs 140,000 crore. Out of Rs 140,000 crore of total investment,
Rs 75,000 crore is estimated in Central Sector for development of Regional Grids
and National Grid, and Rs 65,000 crore is estimated in State Sector for
development of State Grids.
Out of the investment of about Rs. 75,000 crores is envisaged in transmission
under central sector, XYZ has planned to invest about Rs. 55,000 crores on its
own and the remaining Rs. 20,000 crores is expected to be brought in by the
private investors.
RECENT CHANGES IN THE REGULATIONS IN THE
TRANSMISSION SECTOR
Given the critical role of XYZ and the investments to be made into the Sector, it
is critical to evaluate the impact of changes in the regulatory regime and its
impact on the risk portfolio of the company. The key changes in the sector have
been marked with the notification of new Regulations for sharing of interstate
transmission charges by the beneficiaries by the Central Electricity Regulatory
Commission (CERC). Previously, the mechanism of transmission pricing
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followed a regional postage stamp basis which did not fulfil the objectives of the
Tariff Policy in terms of sensitivity towards distance and direction of flow. The
new approach of Point of Connection method has therefore been proposed by
the Commission for ensuring that the sharing of transmission charges and losses
appropriately captures the distance, direction and quantum of the power-flow.
The new Regulations propose a change in the overall mechanism for making
investments in to the sector and envisage new contractual arrangements to be
entered into by the Transmission licensees and the beneficiaries. A critical review
of such proposed changes in the contractual agreements is provided in the
following paragraphs:

EXISTING CONTRACTUAL ARRANGEMENT


Under the existing framework XYZ is entering into two main agreements with
Bulk power beneficiaries from Central Generating Stations namely:
a. Bulk Power Transmission Agreement (BPTA) and
b. Indemnification Agreement.
The overall structure of both the agreements is summarised in the following
figure:
Figure 1: Key features of current Contractual Agreements

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Significance of BPTA and Indemnification Agreement in Making New


Investments
One of the most critical issues in successful implementation of the proposed
Connection and Use of Service Agreement (CUSA) framework would be the
buy-in from the beneficiaries to the proposed sharing mechanism of transmission
charges. While the Regulations provide that XYZ will be able to recover all its
dues from the beneficiaries, however till the time a final CUSA document is
prepared and is agreed up on by all the beneficiaries, the same may impose
market risk to XYZ.

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Figure 2: Change in Approach to investment planning with new Contractual


Agreements

THE PROPOSED CONTRACTUAL ARRANGEMENT


Going forward, it has been proposed by the CERC that the usage of the
transmission sector be governed by the signing of the CUSA between the
transmission provider and the intended beneficiaries and for the purpose, the
Regulator has released an approach paper to discuss the nuances of the proposed
agreement. Structure of CUSA as per this Approach Paper is as follows:
a) Multi-Party agreement in which the users will sign an agreement for use
of Transmission system
b)

An ESCROW account to be opened by every grid connected entity with


depositary nominated for the purpose by the RLDC.

c) CUSA would identify the force-majeure conditions under which the


delay in injection/drawl by grid connected entities would not be charged.

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d) If synchronization of new generator is delayed, it will be made to bear


the burden of the default as per contractual obligation. Similarly, the
demand customer will be made to bear the burden of delay in the
materialization of demand.
e) RLDC would be required to maintain the account of the transmission
charges to be collected from each user of the ISTS. The bills for the
Transmission charges for the use of ISTS would be raised by RPCs based
on RLDC data.
i.

If the actual generation increases above the forecast for the


charging season, the party will be liable for the additional charge
incurred for the full season.

f) In the case generation is in excess of the contracted transmission capacity


(within permissible limit), the billing would be as per actual.
i.

No recalculation would be done where generation is below


forecast generation level.

Figure 3: Proposed CUSA Framework as per Approach Paper

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g) The designated agency (NLDC) would determine the forecast given by


beneficiaries is reasonable and may alter the forecast if unreasonable.
i.

In the event beneficiary drawing more than the scheduled


forecast, the penalty provision similar to generators would be
applicable.

Besides the above structural clarifications provided in the approach paper, mapping
of the proposed framework with the existing BPTA/Indemnification Agreement is
provided in the table below:

Table 3: Comparison of Contractual Provisions


Key Parameters

Existing Arrangement where


safeguard provided

Envisaged Provision under CUSA

Multi-Party agreement in which the users


(Demand Customers and Generation Customers)
will sign agreement(s) for use of Transmission
system

Signatories

Individual BPTA and


Indemnification Agreements

Determination of
Transmission
Charges

BPTA: CERC to determine


ARR and also the
methodology to share such
charges between beneficiaries

ARR to be determined by CERC. NLDC to


determine the marginal pricing which will serve
as a mean to share the above determined ARR.

Responsibility of
Raising Bills

BPTA: XYZ as per the REB


accounting

RPC to raise the bills to beneficiaries on behalf


of the transmission system providers.

Payment Security
Mechanism

BPTA: Defines the payment


security mechanism (LC)

An ESCROW account to be open by every grid


connected entity nominated by RLDC. CUSA
would identify the force-majeure conditions
under which the delay in injection/withdrawl by

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Key Parameters

Existing Arrangement where


safeguard provided

Envisaged Provision under CUSA

grid
Delay in Payment
by beneficiaries

connected entities would not be charged.

BPTA: XYZ has the option to


regulate/discontinue bulk
power transmission in case a
bill remains unpaid for a
period more than 2 months

As per Approach Paper, depository is not liable


for any under/delayed payment to Transmission
system providers.

Sharing of
Transmission
Losses

Regional losses defined by


RLDC are shared by the
beneficiaries

Methodology yet to be prescribed by CERC.


However, CUSA is expected to include clauses
that provide for adherence to the mechanism of
sharing of transmission losses.

Dispute Resolution
Mechanism

BPTA: Arbitration
mechanism defined

CUSA should provide arbitration mechanism.

Delay in
synchronisation of
new generators

Indemnification Agreement

There would still be a need to sign such bilateral


agreements under the overall CUSA framework.

Provision of
ancillary services
viz. Voltage control
, reactive power
etc.

BPTA: defines the


responsibility of CTU for
such services and
commensurate charges to be
borne by the beneficiaries of
such system/regional pool

Responsibility can be placed for the transmission


system providers. Method of sharing of charges
is yet to be defined.

Change in ARR of
lines on account of
FERV, additional
capitalisation etc.
(True-up of
Charges)

Pass through and line specific


ARR to be recovered from
the beneficiaries

CUSA should bind the users to adhere to the


mechanism for true-up of charges which may be
specified in a separate regulation.

27 | P a g e

However, in order to safeguard CTU, clauses in


BPTA should be saved under CUSA accordingly.

Key Parameters

Existing Arrangement where


safeguard provided

Envisaged Provision under CUSA

Treatment of
short/medium term
open access charges

BPTA: such charges are


reduced from long term
charges payable by
beneficiaries as per CERC
methodology

CUSA should bind the users to adhere to the


mechanism for treatment of short/medium term
open access charges which may be specified in a
separate regulation.

Connection charges
and Joint assets

Generators to pay for


connection charges.

CUSA should bind the users to adhere to the


mechanism for connection and joint asset
charges.

Congestion
Management

Network Investments and


corresponding increase in
ARR is passed to
beneficiaries under regional
pool or ATS for specific
generators

CUSA should bind the users to adhere to the


mechanism for congestion management.

28 | P a g e

PROJECT DETAILS
The transmission plan was developed keeping in mind the likely evaluation needs
of all future generation projects in Orissa, with the first phase to be taken up
initially. It is estimated that huge generation capacity would be added in the
private sector alone in the State of Orissa in the next 5 years. Based on overall
plan of proposed generation capacity addition in Orissa and after detailed
discussion with generation developers & Central Electricity Authority (CEA), a
comprehensive high capacity transmission system has been evolved by XYZ
which is to be implemented matching with the programme of generation capacity
addition. The following generation projects are scheduled to be commissioned in
Orissa during the XI/early XII plan for which the evacuation scheme has been
developed by XYZ:
Table 4: List of Generation Plants seeking Long Term Open Access in Orissa
Sl. No.

Projects

Sterlite

GMR

Navbharat

Monnet

Jindal

Lanco Babandh

Ind Barath

Subtotal

29 | P a g e

Generation
Developer/ Open
Access Applicant
Sterlite Energy
Ltd.
GMR Kamalanga
Energy Ltd.
Navbharat Power
Pvt. Ltd.
Monnet Power
Company Ltd.
Jindal India
Thermal Power
Ltd.
Lanco Babandh
Power Pvt. Ltd.
Ind Barath Energy
(Utkal) Ltd.

Date of
Commissioning

LTA Quantum
(MW)

June 2010

400

November 2011

800

March 2012

720

June 2012

900

March 2012

1044

December 2013

1600

December 2011

616
6080

Further, in view of spread out commissioning schedule of these generation


projects (June 2010 to Dec 2013), the transmission schemes are to be
implemented in phased manner matching with the realistic commissioning of
generation projects in consultation with Generating Companies/ Beneficiaries.
Therefore, transmission system for above mentioned 7 (seven) nos. of projects is
proposed to be implemented in three parts; Part-A, Part-B and Part-C. Present
proposal is for Part-A of the transmission system.
As part of this project, XYZ has planned to establish two major 765/400 kV
pooling stations in Orissa at Angul and Jharsuguda. The pooling stations would
be interconnected in ring form with 765 2xS/c lines. Further, these substations
would have a 400 kV interconnection with the Eastern Region Grid for initial
evacuation of power. The details of the transmission system planned in this phase
are given as under:
Table 5: Details of the Proposed Transmission System
S. No.
A.

Technical Details
Length (Km)
245

1.

Project Component
Transmission Line
765 KV S/C Angul Pooling Station-Jharsuguda
Pooling Station Transmission Line (Line-1)
765 KV S/C Angul Pooling Station-Jharsuguda
Pooling Station Transmission Line (Line-2)

245

2.

LILO of 400 KV D/C Rourkela-Raigarh


Transmission Line at Jharsuguda Pooling Station

40

3.

4.

LILO of 400 KV S/C Meramundali-Jeypore


Transmission Line at Angul Pooling Station
LILO of one circuit of 400 KV D/C TalcharMeramundali Transmission Line at Angul Pooling
Station
Substation
Jharsuguda 765/400 kV New S/S

16

5.
B.
1.

30 | P a g e

No of bays
765 kV Line Bays : 4 Nos Transformer
Bays : 2 Nos Bus Reactor Bays : 2 Nos
400 kV Line Bays : 4 Nos Transformer
Bays : 2 Nos
Bus Reactor Bays : 2 Nos

Angul 765/400/220 kV New S/S

2.

765 kV Line Bays : 2 Nos Transformer


Bays : 4 Nos
Bus Reactor Bays : 2 Nos
400 kV Line Bays : 4 Nos Transformer
Bays : 4 Nos
Bus Reactor Bays : 3 Nos

STATUS OF PROJECT CLEARANCES


Status of key statutory and non-statutory clearances required for the Project has
been tabulated below:
Table 6: Status of project clearances
S.No.

Item

Agency

Status

Statutory clearances

Right

of

transmission line

Way

for GoI/Respective
state government

XYZ has informed that under section 164 1 of


the Electricity Act, they have been conferred
powers of the telegraphic authority2, as

Section 164 of the Electricity Act, 2003, states: The Appropriate Government may, by order in writing, for the
placing of electric lines or electrical plant for the transmission of electricity or for the purpose of telephonic or
telegraphic communications necessary for the proper co-ordination of works, confer upon any public officer,
licensee or any other person engaged in the business of supplying electricity under this Act, subject to such
conditions and restrictions, if any, as the Appropriate Government may think fit to impose and to the provisions of
the Indian Telegraph Act, 1885, any of the powers which the telegraph authority possesses under that Act with

respect to the placing of telegraph authority possesses under that Act with respect to
the placing of telegraph lines and posts for the purposes of a telegraph established or
maintained, by the Government or to be so established or maintained

Part III, Section 10 of the Indian Telegraph Act 1885, states The telegraph authority
may, from time to time, place and maintain a telegraph line under, over, along or
across, and posts in or upon, any immoveable property: Provided that- (a) the telegraph
authority shall not exercise the powers conferred by this section except for the
purposes of a tele- graph established or maintained by the 1[Central Government], or to
be so established or maintained; (b) the 1*[Central Government] shall not acquire any
right other than that of user only in the property under, over, along, across, in or upon
which the telegraph authority places any telegraph line or post ; and (c) except as
hereinafter provided, the telegraph authority shall not exercise those powers in respect
of any property vested in or under the control or management of any local authority,
2

31 | P a g e

defined in Indian Telegraphic Act 1885, by


the Government of India. This empowers
them to acquire Right of Way anywhere in
India without any permission from any
authority. However, the compensation needs
to be paid for land usage for setting up
transmission towers.
2

Approval under section 68 of GoI

Already been obtained on 16th November

the Electricity Act

2009.

Forest

clearance

for MoEF/Forest

transmission line/substations

department

Based on the preliminary assessment, about


of 336 hectares of forest area is likely to be

state government

involved.

Forest

clearance

from

forest

authorities, as applicable would be obtained.


Non-statutory clearances

Besides this, the status of key agreements is also outlined below:

Table 7: Status of key agreements

S.No

Item

Agency

Bulk
Power To be signed
Transmission
Agreement (BPTA)

Status

After many rounds of detailed discussions with the


CEA, various state utilities and generation developers,
agreement on signing of the BPTA between XYZ and
the project developers was reached with the project
developers to share the transmission charges.

without the permission of that authority; and (d) in the exercise of the powers conferred
by this section, the telegraph authority shall do as little damage as possible, and, when
it has exercised those powers in respect of any property other than that referred to in
clause (c), shall pay full compensation to all persons interested for any damage
sustained by them by reason of the exercise of those powers
32 | P a g e

Currently, 5 generation developers viz. GMR


Kamalanga Energy Ltd., Monnet Power Company
Ltd., Jindal India Thermal Power Ltd, Lanco
Babandh Power Pvt. Ltd. and Ind Barath Energy
(Utkal) Ltd. have signed BPTA with XYZ.
2

Indemnification
Agreement (IA)

33 | P a g e

With
generating
companies

the Indemnification is covered under BPTA executed by


the generation developers.

IMPLEMENTATION AND FINANCING PLAN


The Project is scheduled to be commissioned within 30 months progressively
from the date of investment approval. Keeping in view the short gestation of the
transmission projects and the size of this particular project, we believe this
timeline is quite reasonable. The summary of the project implementation
schedule is provided in the table below. The detailed project implementation
scheduled is attached as per Annexure-B.
Table 8: Project Completion Milestones
Activity

Milestone

Project Formulation
Project Approval
Environment Clearance
Establishment of substations
Laying of Transmission Lines
Project Completion

Zero Date
Nov, 2008
Jul, 2009
May, 2010
Aug, 2009
Sep, 2009

To be completed by
Jul, 2009
June, 2010
Apr, 2011
Sep, 2012
Sep, 2012
Sep, 2012

PROJECT COST
The total cost of the project is worked out at Rs. 2060.45 crore, consisting of Rs.
1928.04 crore as hard costs and Rs 132.42 as IDC. As per the estimates of XYZ,
the total project cost works out to Rs 2055.01 crore, including IDC of Rs 126.97
crore. Detailed components wise break of the Project cost is tabulated below:
Table 9: Detailed Project cost
Description
Transmission Lines
765 KV S/C Angul Pooling
Station-Jharsuguda Pooling Station
Transmission Line (Line-1)
765 KV S/C Angul Pooling
Station-Jharsuguda Pooling Station
Transmission Line (Line-2)
LILO of 400 KV D/C RourkelaRaigarh Transmission Line at
Jharsuguda Pooling Station
LILO of 400 KV S/C
34 | P a g e

Total Cost (Rs. crore)

Description

402.90

XYZs Estimates

402.90

XYZs Estimates

52.71

XYZs Estimates

6.67

XYZs Estimates

Meramundali-Jeypore
Transmission Line at Angul
Pooling Station
LILO of one circuit of 400 KV D/C
Talchar-Meramundali Transmission
Line at Angul Pooling Station
Sub Total
Substations
Jharsuguda new S/S
Angul new S/S
Sub Total
Other Expenses
Communications Equipment
Maintenance during construction
Engg. & Administration
Losses on Stock
Contingencies
Sub Total
Interest During Construction
Interest During Construction (IDC)
Sub Total
GRAND TOTAL

35 | P a g e

19.97

XYZs Estimates
885.15

401.45
500.15

XYZs Estimates
XYZs Estimates
901.60

7.72
83.33

XYZs Estimates
XYZs Estimates

50.24

XYZs Estimates
141.29

132.42

IMaCS Estimate
132.42
2060.45

The broad break up of the costs is given as follows:


Table 10: Category Wise Project cost

The IDC has been computed based on interest rate of 10.50% provided by XYZ
and considered justifiable by IMaCS. The phasing of capital expenditure as
provided by XYZ has been considered by IMaCS. The same is provided below:
Table 11: Phasing of capital expenditure
Year
2010 - 2011 (Jun 2010-Mar 2011)
2011 2012
2012-2013 (Apr 2012-Nov 2012)
2012-2013 (Dec 2012-Mar 2013)
2013 - 2014
Total
36 | P a g e

% of the project cost


17.40%
32.37%
40.85%
2.81%
6.57%
100.00%

Amount ( Rs. crore)


358.48
666.93
841.73
57.99
135.32
2060.45

For the purpose of calculation, XYZ has assumed June 2010 as the month of
investment approval.
XYZ has estimated project cost based on price level at 1st quarter of year 2010.
In the analysis, XYZ has assumed the following basis:
a) Debt component is envisaged to be covered under Domestic sources.
b) Equity component is made through internal accruals.
c) Interest rate has been considered @ 10.5% for Domestic loan
d) Debt : Equity ratio has been considered as 70:30.
e) The project is scheduled to be commissioned within 30 months from the
date of investment approval.
Further, XYZ has estimated the Project cost based on the average of last three
Letter of Awards (LoA) after escalating the cost to Q1-2010 level by relevant
escalation indices. This has been done to average out any abnormal price
discovery during latest award and is in line with the methodology followed by
XYZ while submitting the cost estimates to Government of India (GoI) before
granting of Navaratna status. The capital cost is inclusive of Excise duty @
10.30% and CST @2% and F&I @4%. For imported components customs duty
@20.94% and handling charges of 2% have been considered.
ANALYSIS OF THE COST ESTIMATES
IMaCS has analyzed the methodology adopted by XYZ for the purpose of
arriving at the capital cost of the proposed project. It has been observed that XYZ
considers the last three orders placed for similar projects and takes their ordering
cost as the base prices. Such prices are then escalated using the relevant indices
for such material, labour to arrive at the cost of the project for the month in
which the current financial appraisal is to be performed. After escalation of the
prices to the relevant month, an average of the prices for such previous orders is
taken as the base price for calculating the project cost.
Based on the information provided in the feasibility report and keeping the
standardization of transmission line, substation designs, switchyard layouts,
technical parameters of equipment etc. in perspective, the capital cost for the
project was compared with similar projects like the Transmission Scheme of 765

37 | P a g e

kV system for Central Part of Northern Grid for ascertaining costs for
transmission line, substation and other components. Based on the findings, it may
be commented that the estimated overall capital cost of this project appears to be
reasonable. However, it would be difficult to exactly comment on the adequacy
of the cost for land acquisition, compensation for crops etc. as it may vary widely
from project to project. On the other hand, the cost estimates for steel tower,
conductors, earth wire, substation etc. appear to be reasonable.
ISSUES IN THE CURRENT METHODOLOGY
IMaCS is made to understand that as per the contracts entered into by XYZ, the
finalized costs are indexed to inflation indices. Any abnormal variation in the
same is passed on to XYZ as per the contractual obligations. IMaCS understands
that such a provision in the contract gives a comfort level to the bidders regarding
inflation in prices. At the same time, it helps XYZ to get competitive quotes as
the risk of the Bidders in such a case is relatively balanced (in comparison to a
firm price contract). Absence of such provision will prompt the bidders to
consider certain margin of safety while quoting the prices which will inflate the
capital cost. However, it increases the chances of cost over-runs in projects.
In this regard, we understand that CERC has also framed the norms for
establishing the benchmark capital cost of 765 kV and 400 kV projects and the
same are based on the data submitted by XYZ for the projects implemented in the
recent past. However, since XYZ is not in the process of manufacturing of
equipments, it has to source the same from other vendors who in turn submit
their price quotes depending on the competitive forces operating in the market at
the time of such bid process. Therefore, it may be appreciated that such
benchmarking cost established by the CERC may be used as a reference for
comparison of the actual capital cost projected by XYZ. We understand that
CERC has indicated it is open to consider such merits of actual cost of the project
and the submissions of XYZ will be given due cognizance at the time of approval
of capital cost for the purpose of approval of Tariff.

38 | P a g e

FINANCING PLAN
Proposed financing plan for the project is as tabulated below.
Table 12: Capital structure

Source

Investments

Percentage

Promoter's Contribution

618.14

30%

Domestic Debt Borrowings (Bonds/Term Loan)

1442.32

70%

Total

2060.45

100.00 %

XYZ proposes to fund equity through its internal accruals and debt has been
envisaged from domestic sources.

39 | P a g e

FINANCIAL ANALYSIS
SOURCES OF REVENUE
The transmission charges for the Project will be determined by CERC and will be
payable by the beneficiaries (private project developers in Orissa) according to
the terms and conditions of the BPTA. Currently, 5 generation developers viz.
GMR Kamalanga Energy Ltd., Monnet Power Company Ltd., Jindal India
Thermal Power Ltd, Lanco Babandh Power Pvt. Ltd. and Ind Barath Energy
(Utkal) Ltd. have signed BPTA and furnished requisite Bank Guarantee. It has
been stipulated in the BPTA that in the eventuality of non-commissioning of any
of the generation project, the transmission charges would be shared by the
balance project developers. However, the amount received from the defaulting
developers in the form of Bank Guarantee and penalty, if any, imposed by CERC
shall be offset in the cost of the project giving some benefits to the balance
developers.
BASE CASE ASSUMPTIONS
The assumptions forming the base case of our financial analysis are given below:
Table 13: Assumptions for calculating returns

Description

Assumption

Project Start Date

1 June , 2010

Project Completion Date

1 Dec, 2012

Project Life-Span

35 years

Annual O&M Expenditure

As per CERC Norms3 (Given in Annexure C)

O&M cost escalation rate

5.72% per annum

Debt: Equity Ratio

70:30

CERC norms refer to various norms specified in CERC ( Terms and Conditions of Tariff) Regulations 2009 for
determination of tariff for transmission assets

40 | P a g e

Description

Assumption

Return on Equity

15.5% (post-tax)

Interest Rate

10.50% per annum.

Repayment term

12 years

Moratorium Period

4 years (including construction period)

Frequency of Installments

Annual

Discount Rate for Levelized Tariff

10.19%

Working Capital assumptions


Interest on Working Capital Loan
(for tariff computation) (%)

11.75% per annum

Interest on Working Capital Loan


(actually payable) (%)

10.75% per annum

Working Capital Margin


Receivables
O&M expenditure
Maintenance spares

25%
2 months
1 month
15% of O&M expenses

Depreciation Rate (Tariff )

Transmission line- 5.28% per annum

for 12 years

Substation 5.28% per annum


Civil work 3.34% per annum
Maximum depreciation-90%
Method: SLM

from 13th year to remaining useful life


of asset

Remaining Depreciable Value of the Asset will


depreciated equally over a period of 23 years for
Transmission Lines and 13 years for Sub-stations.

Salvage value

10% of the project cost

Depreciation Rate (P&L Accounts) As per Companies Act, 1956

Transmission Lines5.28% per annum.

41 | P a g e

Substation-5.28% per annum.

Description

Assumption
Civil work-3.34%
Maximum Depreciation-95%
Method: SLM

SENSITIVITY ANALYSIS
An analysis of the impact of various parameters on the projected profitability of
the projected has been calculated and tabulated in a matrix form which is given
below:
Table 14: Sensitivity Analysis
Cas
e
No.

42 | P a g e

Description

Equity
IRR
(Post Tax)
(%)

Project
IRR
(Post Tax)
(%)

DSCR
Minimum

Average

Levelized
Transmission
charge
( Rs. Crore)

Base Case

14.73%

11.38%

1.05

1.65

324.45

5% of the Project cost is not


accepted by CERC

12.93%

10.67%

1.00

1.57

310.30

RoE increases by 0.5%

15.17%

11.56%

1.07

1.68

328.01

RoE reduces by 1.0%

13.84%

11.02%

1.00

1.61

317.33

Debt-equity ratio increases to


80:20

14.09%

10.61%

0.84

1.37

311.60

O&M expenses increase by


1% more than CERC norm

14.32%

11.15%

1.02

1.63

324.51

Interest on actual working


capital loan reduces by 1%

14.79%

11.40%

1.05

1.66

324.45

Term loan repayment period


increases by 5 years

14.71%

11.43%

0.38

1.38

324.45

Term loan moratorium period


increases by 1 year

15.00%

11.41%

1.01

1.56

324.45

Projects gets completed earlier


by 3 months

14.92%

11.40%

1.03

1.60

320.87

10

Project Delays by 6 months

13.22%

10.20%

1.10

1.76

331.92

11

Project Delays by 12 months

13.19%

10.29%

1.31

1.88

339.53

12

Project Delays by 6 months


and CERC does not approve
the additional cost

12.46%

9.88%

1.07

1.72

324.27

Project Delays by 12 months


and CERC does not approve
the additional cost

11.76%

9.66%

1.25

1.79

324.09

13

Charts: DSCR, Equity Cash Flow and Tariff Movement

43 | P a g e

The key results from the sensitivity analysis are as follows:


Base Case: The projected base case equity IRR for the project is 14.73%, , which
is slightly less than the regulated returns of 15.5% that are allowed for
transmission projects as per CERC regulations while the project IRR is 11.38%.
This is expected as the project does not generate any returns during the
construction phase and hence the returns over the life of the project would be less
than the regulated returns. At these levels, the project has moderate returns for
the equity holders of a regulated entity operating in a low risk annuity business
with strong debt servicing capability and large market share.
In this scenario, the average debt servicing capacity of the project, as given by its
DSCR is 1.65, thereby providing the project with a strong cushion to service its
debt. The levelized transmission charge payable by the beneficiaries works out to
44 | P a g e

be Rs.324.45 crore. Movement of DSCR, equity cash flows and tariff have been
shown in the graphs given above.
The other key parameters affecting the financials as per the sensitivity analysis
are as follows:
Disallowance of capital cost by CERC: Even a 5% disallowance of capital cost
by CERC has a significant impact on the project profitability. In such a scenario,
the equity IRR drops by 1.80% to 12.93% whereas the project IRR drops to
10.67% and the average DSCR drops to 1.57. For a regulated entity like XYZ,
there is always a chance that some of the expenditure incurred does not pass the
regulators scrutiny, and this presents a significant risk to the future profitability
of the project as well as the company.
Change in timelines if the project: Even a slight change in the timelines has a
significant impact on the project financial results. A 6 month delay leads to a
1.51% drop in the equity returns of the project to 13.87% while a 12 month delay
further drops the equity IRR to 13.19%. This is because of the fact that firstly,
delays lead to postponement of revenue while at the same time, the expenses in
the form of interest etc continue to mount up. Another important factor that will
result due to project delays is that the stipulated 0.5% extra returns allowed as per
CERC norms in case of timely completion of projects would not be given for the
project, leading to a higher potential loss of revenue. Further, there is always a
chance that CERC might not allow the extra cost incurred due to time overrun. In
such a scenario, for a 6 month delay the equity returns reduce further to just
12.46%
Changes in financial structuring and terms: Any change in financial
structuring also has a significant impact on the project profitability. A shift from
debt equity ratio of 70:30 to 80:20 reduces the equity returns by 0.64% and
decreases the average DSCR to 1.37. This happens as the CERC allows returns to
be paid only on actual equity involved in the project, subject to a maximum of
30% of the project value. Thus lower equity levels would lead to lesser returns
for the project. Similarly, a shift to more favourable debt terms, such as an
increase in repayment period from 12 years to 15 years or an additional

45 | P a g e

moratorium period of 1 year (beyond the 4 years moratorium assumed under base
case) for repayment of loan after commissioning of the project increases the
returns of the project to 14.71% and 15.00% respectively.

46 | P a g e

KEY CHALLENGES & MITIGATION STRATEGIES


Based on our analysis of the project as well as the transmission sector in general, the key risk factors identified and the steps that XYZ can take to
mitigate these risks are given as under:
Table 15: Key Challenges in Project Execution

Sl.N

Risk Head

Risk Description

Risk

Likely

to

Grade

Allocated to

be Remarks/Proposed Mitigation Mechanism

Pre Construction Risks


1

Beneficiarys

Beneficiaries

consent risk

agreeing
the

to

not Low to XYZ


bear Medium

transmission

charges
disputing

The aforementioned transmission system was discussed with both the


developers and the intended state utilities and after discussions, it has been
decided to sign the Bulk Power Transmission Agreement (BPTA) with the

or

project developers, who would then bear the transmission charges. This is a

their

departure from the common practice of signing the BPTA with the State

share of allocation

Utilities and may present some risk due to beneficiary default. However,
IMaCS understands that XYZ has signed the BPTA with 5 developers which
has provisions wherein the developers have agreed to bear the higher
transmission charges in case of non-commissioning of any of the generation
project, the transmission charges would be shared by the balance project
developers.
Moreover, recently CERC has floated an Approach Paper on Formulating

Sl.N

Risk Head

Risk Description

Risk

Likely

to

Grade

Allocated to

be Remarks/Proposed Mitigation Mechanism

Pricing Methodologies for Inter-State Transmission in India which envisages


complete revamping of the current methodology for allocation of transmission
charges among various beneficiaries. The new methodology advocates
Marginal Participation Method for allocation of transmission charges and
undertaking new transmission projects without approval of beneficiaries.
Such modifications in the payment mechanism may give rise to some disputes
in regard to recovery of transmission charges, which may affect the project
viability to some extent. However, considering that the Project completion
period is 30 months, total life of the Project is 35 years, there is huge
investment requirement at least for next decade, and regulators strive to
balance interests of all the stakeholders, we do expect low to moderate risk on
account of adverse regulatory stance.
2

Statutory and Non availability of Medium XYZ

One of the major reasons for the delay in project execution in the transmission

non statutory the clearances/ non

sector in the past has been due to time taken in obtaining the Right of Way

clearances

availability of the

(RoW) for transmission lines. Although XYZ has been empowered by

risk

clearances in time

legislature to get the ROW, however, transmission lines often pass through
inhabited areas which may lead to delays in acquiring ROW. Further,
compensation needs to be paid in case private land is acquired for
constructing substations and this also results in loss of time in negotiating and
settlement.

Sl.N
o

Risk Head

Risk Description

Risk

Likely

to

Grade

Allocated to

be Remarks/Proposed Mitigation Mechanism

The second type of clearance required is Forest clearance to be obtained from


MoEF as per Forest (Conservation) Act, 1980 for the passage of transmission
line through forest area.
Based on its preliminary survey, XYZ has anticipated that the transmission
lines will pass through roughly 656 hectares of forest land. This is a
substantial area in IMaCS estimate and acquiring forest clearance will be a
time consuming exercise due to elaborate procedures required for the same.
XYZ has substantial experience in dealing with the Forest clearance and R&R
issues, and being a Central Government Undertaking would also have the
support of the state government, so there is unlikely to be any major issue
with acquiring RoW for normal land. However, since significant forest
clearance and fresh land ( amounting to 130 acres for Jharsuguda S/S and 320
acres for Angul S/S) needs to be obtained, hence we perceive a medium level
of threat to timely project execution from non availability of timely project
clearances.
Going forward, Further, to remove ROW constraints, XYZ can look at
appointing an external agency for enabling ROW which would have greater
flexibility in dealing with ROW bottlenecks. A more rational compensation
policy, as has been adopted in many states, may also be looked into to avoid

Sl.N

Risk Head

Risk Description

Risk

Likely

to

Grade

Allocated to

be Remarks/Proposed Mitigation Mechanism

time over-runs
Construction Risks
3

Project Cost Further

escalation Low

XYZ

It has been noted that XYZs contracts normally has price adjustment clauses

Escalation

in the Project cost

linked to various consumer and metal indices. 4 This exposes the Project to the

Risk

due to capital cost

cost escalation due to adverse movement in the commodity5 prices.

escalation

Considering that: (a) the world economy is under recovery after an overall
recession across the world economy, (b) commodity prices have substantially
come down during last six months and are almost at the same level as they
were one year before, and (c) the Project is likely to completed in 30 months,
we believe there is only low risk for any substantial price movement in the
commodities. Further, any uncontrollable increase in expenses is likely to be
passed through in tariff and hence may not adversely affect XYZ.

Escalation in the Medium XYZ

Considering current economic condition and high inflation in the economy,

Project cost due to

we

increase in interest

instrument/Domestic Debt Borrowings (Bonds/Term Loan) interest rates in

believe

there

IEEMA, WPI, CPI etc

Key commodities used in the transmission lines and substations are aluminum, steel, copper and cement.

is

probability

of

increase

in

long

term

debt

Sl.N

Risk Head

Risk Description

Risk

Likely

Grade

Allocated to

rate
5

to

be Remarks/Proposed Mitigation Mechanism

the short term.

Escalation in the Low

XYZ

As world economy is recovering and FII inflow is increasing in Indian

Project Cost due to

Economy, hence it is expected that Indian Rupee will appreciate or remain

adverse movement

steady with respect to US dollar. So, we envisage low risk on cost escalation

in the exchange rate

due to adverse movement of the exchange rate.

of

the

foreign

currency
component
6

Project

Delay

in Low

completion

commissioning

XYZ

significant risk on this account.

risk

Considering the nature of the transmission system, we do not envisage any

s
Delay

due

to Medium XYZ

As the project involves construction of 765 kV lines, there could be some

Manufacturer

delays owing to the fact that the manufacturers of high voltage equipment at

delays

the domestic level are few in number with substantial order books. Further,
purchasing the equipment from foreign manufacturers could expose XYZ to
other kinds of risks, with increase in costs and quality control being the most
significant. Further, It may also be critical for XYZ to identify beforehand
international vendors for supply of such equipments. As a result of this, we

Sl.N

Risk Head

Risk Description

Risk

Likely

to

Grade

Allocated to

be Remarks/Proposed Mitigation Mechanism

perceive that the risk on this account is medium. A detailed note on the
demand and supply of 765 kV equipment as well as the future outlook has
been provided as Annexure D.
8

Delays

due

to Low

XYZ

Technology Issues

Since XYZ has successfully implemented projects at this voltage level in the
past, hence we feel that they possess significant expertise to handle the unique
challenges posed by 765 kV technology line implementation. As such, we
perceive the threat on this account as low.

Delay

in Low

XYZ / Contractors

XYZ levies adequate liquidated damages 6 on the main contractors/suppliers to

commissioning due

deter them for any delay in the commissioning. Hence, we perceive less risk

to delinquency by

on this count.

the contractors
10

Delays due to law Low to XYZ

As the transmission line will pass through certain areas which may be affected

and order issues

by the naxalite problem, as such low and order issues might cause some delay

Medium

in the project implementation. We perceive this risk as low to medium.

Ref. LoA to Associated Transrail Structures Limited, ref. C-4703-L195A-3/LOA-I/2701, dated 22/10/2008- Liquidated damages for delay in construction: 0.5%
of the contract price for each week of delay with ceiling of 5% of the contract price, Performance bank guarantee: 10% of the contract price valid upto 90 days
from the end of warranty period, Advance payment: Interest bearing advance of 15% of the contract price against bank guarantee, was also to be released
against bank guarantee of the equivalent amount.

Sl.N

Risk Head

Risk Description

o
11

Timelines

Mismatch

matching

commissioning

risk

the
projects

in

Risk

Likely

Grade

Allocated to

the Medium XYZ

to

be Remarks/Proposed Mitigation Mechanism

Since this scheme is essentially for facilitation of evacuation of power from

of

the upcoming private power projects in Orissa, hence it is essential that the

generation

project be aligned with the commissioning dates of these generation projects

and

and steps be taken in the form of indemnification agreements to safeguard the

transmission lines

interests of XYZ in case the generation projects get delayed. Since any delay
would lead to stranded assets for XYZ with no or little revenues and rising
interest expenses, hence we perceive this risk as medium.
To mitigate this risk, XYZ should continuously and closely monitor the
progress of the various generation projects associated with this transmission
scheme so that in case of any delays in their commissioning schedule, the
investment schedule of the transmission project can be suitably adjusted.
Further IMaCS understands that the CERC as part of the draft regulations for
sharing of Interstate charges has directed XYZ to publish draft CUSA for
discussion. Such agreement shall govern the provision of transmission
services and charging for the same. The proposed CUSA framework to be
designed by XYZ is envisaged to save the current clauses of the
Indemnification Agreement. Therefore, the risk of increase in capital cost on
account of IDC will get mitigated appropriately. Further, the proposed CUSA
framework also needs to address the issue of recovery of associated
transmission ARR for open access lines. Hence, XYZ should take appropriate

Sl.N

Risk Head

Risk Description

Risk

Likely

to

Grade

Allocated to

be Remarks/Proposed Mitigation Mechanism

steps while drafting the CUSA to include provisions which cover all the
aspects of loss of revenue on account of delay in generation projects.
12

Foreign

Adverse movement

Exchange

in

Risk

currency in which

the

Nil

XYZ

foreign

The Project will be financed through 70% debt (from domestic resources) and
30% equity (from internal accruals). XYZ has envisaged 100% debt financing
of the Project from the domestic sources. Hence, this risk is not envisaged.

liabilities have been


created
13

Force

Reduced

Low

XYZ

Though XYZ needs to maintain minimum availability norms specified by

Majeure

availability of the

CERC to realize its transmission charges, there may be some genuine

Risk

transmission

natural/non natural force majeure events that may reduce the availability. We

system due to force

believe that CERC, as a quasi-judicial body, would give adequate hearing to

majeure events or

XYZ in such events and would not resort to transmission charges reduction in

change in law

case the reason is found justifiable and beyond the reasonable control of XYZ.
Hence, we grade this risk to the Low category.

Post-construction Risks
14

Regulatory

Realization of tariff Medium XYZ

Tariff charged by XYZ from its beneficiaries is regulated by CERC. Typically,

Risk

less

than

CERC determines the norms for tariff determination for five years. Last tariff

anticipated due to

determination norms were notified in year 2009 and will expire on March 31,

Sl.N

Risk Head

Risk Description

o
change

in

Risk

Likely

Grade

Allocated to

tariff

to

be Remarks/Proposed Mitigation Mechanism

2014. Recently, CERC has floated an Approach Paper on Formulating

determination

Pricing Methodologies for Inter-State Transmission in India which envisages

methodology/norms

complete revamping of the current methodology for allocation of transmission

by CERC

charges among various beneficiaries. The new methodology advocates


Marginal Participation Method for allocation of transmission charges and
undertaking new transmission projects without approval of beneficiaries.
Such modifications in the payment mechanism may give rise to some disputes
in regard to recovery of transmission charges, which may affect the project
viability to some extent. However, considering that the Project completion
period is 30 months, total life of the Project is 35 years, there is huge
investment requirement at least for next decade, and regulators strive to
balance interests of all the stakeholders, we do expect moderate risk on
account of adverse regulatory stance. It would be desirable if XYZ do strong
policy advocacy in regard to implementation related issues with the new
transmission charge allocation methodology, and risk related reasonable
returns for expansion of the transmission network in future.

15

Payment

Nonpayment of the Low to XYZ

Since the signatories of the BPTA will be the private project developers,

Default Risk

charges

hence there is a slight risk of default, as compared to SEBs which are

developers

by

the Medium

generally the signatories of BPTAs where XYZ has recourse to Central


Governments devolution of funds to state government in case of default.

Sl.N

Risk Head

Risk Description

Risk

Likely

to

Grade

Allocated to

be Remarks/Proposed Mitigation Mechanism

Hence we perceive this risk as low to medium.


16

Technology

Poor availability of Low

XYZ

and

the

Contractors/Supplier

and the technology for such systems is well established. XYZ has adequate

Equipment

system

experience in setting up, operating and maintaining 765/400/220 kV

Performance

technical reasons

transmission
due

to

and

its Transmission lines and associated systems are essential part of power system

transmission lines and substations in India. Hence, we do not envisage any

Risk

substantial risk during operation period on this account.


As far as performance of the equipment is concerned, XYZ has established
practice of securing adequate warranty period and performance guarantee
from the contractors/suppliers to ensure smooth performance of the
equipment. Hence, we do not envisage any substantial risk on this account.

17

Change

in Reduced

income

law Risk

due

adverse

to

changes in the law

Low

XYZ

There is huge investment requirement at least for next decade, and regulators
strive to balance interests of all the stakeholders, we do expect moderate risk
on account of adverse regulatory stance., we anticipate less risk to XYZ on
this account.

CONCLUSIONS AND RECOMMENDATIONS


KEY CONCERNS
a) Timeline Mismatch Risk: One of the most important factors affecting this project is that the completion of the transmission project is
aligned to the dates of completion of the generation projects for the evacuation of which this project is being established. XYZ needs to
closely keep a watch on the generation projects being set up to ensure non-stranding of the assets and timely payment of the transmission
charges.
b) Project cost: XYZ has intimated that it has estimated the Project cost based on the average of the last three Letter of Awards (LoAs) after
escalating the cost to Q1-2010 level by relevant escalation indices. This has been done to average out any abnormal price discovery during
latest award and is in line with the methodology followed by XYZ while submitting the cost estimates to Government of India (GoI) before
granting of the Navaratna status. Further, based on our analysis, we have found the Project cost prone to escalation on account of
Commodity Price Inflation Risk. It has been noted that XYZs contracts normally have price adjustment clauses linked to various consumer
and metal indices. This exposes the Project to the cost escalation due to adverse movement in the commodity prices. Since the Project
completion period is 30 months, XYZ may consider passing on this risk to the suppliers considering that various hedging options are
available in the national and international commodity exchanges. XYZ has opined that: (a) with price variation clauses the price discovery is
optimum in an open competitive bidding process, which XYZ employs for awarding various equipment packages for the Project, and (b)
viability of the project is not affected by the presence of this risk, as the tariff is approved based on the actual completed cost.
c) Regulatory Risk: CERC has recently notified the tariff regulations for the period of 2009-14. However, since the Project completion period
is 30 months, the new regulations may apply only for two years on the Project. Project would be subject to changes in the regulations for
balance period of 30 years. Recently, CERC has floated an Approach Paper on Formulating Pricing Methodologies for Inter-State
Transmission in India and it is envisaged that new pricing regulations may come up in near future. Considering that there is huge investment
requirement in transmission sector during next decade and regulators normally try to balance interests of all the stakeholders, we do not
envisage any substantial risk on account of adverse regulatory stance. However, amendment in the regulations- like transmission charges

allocation mechanism and absence of prior approval from the beneficiaries for undertaking the project- may give rise to disputes in recovery
of the required transmission charges from the beneficiaries. Hence, it would be desirable if XYZ do policy advocacy with the regulator on: (a)
dispute free and implementable transmission charges allocation mechanism, (b) some kind of alternative payment security mechanism for
undertaking any project without prior consent from the beneficiaries, and (c) the risk related returns and need for reasonable returns for
expansion of the transmission network in future.
RECOMMENDATIONS
XYZ has proposed the development of a transmission plan to evacuate power from the upcoming generation projects in Orissa, transfer of the
power to NR/WR. In its first phase, the project would consist of two major 765/400 kV pooling stations in Orissa at Angul and Jharsuguda. The
pooling stations would be interconnected in ring form with 765 2xS/c lines. Further, these substations would have a 400 kV interconnection with
the Eastern Region Grid for initial evacuation of power.
The total cost of the project is worked out to be Rs. 2060.45 crore (based on 1st quarter 2010 cost level) including IDC of Rs. 132.42 crore.
According to XYZs estimates, the total Project cost works out to be Rs.2055.01 crore including IDC of Rs. 126.97 crore. As per our analysis, the
project under standard assumptions gives an EIRR of 14.73% and a corresponding Project IRR of 11.38% over its lifetime. We understand that the
same may be considered as moderate returns for the equity investors. However, considering the strong debt servicing capability of the Project
(with average DSCR of 1.65), the project IRR may be considered as fairly reasonable under the Regulatory regime. Accordingly, we recommend
that, subject to suitable redressal of key project risks and internal risk appetite, XYZ may consider investment in the Project.

ANNEXURES
ANNEXURE A: DETAILED FINANCIAL STATEMENTS (BASE CASE)
1.

Tariff computation
All values in Rs. crore until specified

2.

Profit and Loss Account


All values in Rs. crore until specified

3.

Balance Sheet
All values in Rs. crore until specified

4.

Cash Flow, DSCR and IRR Computations


All values in Rs. crore until specified

Key Outputs
Equity IRR
Project IRR
Min. DSCR
Avg. DSCR
Trans. Charge

14.73%
11.38%
1.05
1.65
324.45

ANNEXURE-B : DETAILED IMPLEMENTATION PLAN

ANNEXURE-C: CENTRAL REGULATORY COMMISSION (TERMS & CONDITIONS


OF TARIFF) REGULATIONS, 2009

Description
Useful Life of Transmission

Regulation
35 years

Line
Initial Spares

Initial spares shall be capitalised as a percentage of the original


project cost, subject to following ceiling norms Transmission Line
Transmission Sub-station

: 0.75 %
: 2.5%

Series Compensation and HVDC Station : 3.5%


Debt : Equity Ratio

70 : 30

Return on Equity

Return on equity shall be computed on pre-tax basis at the base


rate of 15.5% to be grossed up. Additional return of 0.5% shall be
allowed if such projects are completed within the timelines
specified by CERC.

Depreciation

Salvage Value
Depreciation Allowed

: 10%
: 90%

Depreciation Rates (SLM method)


Transmission Line & Substation
Civil Work

: 5.28% (for 12 years)


: 3.34% (for 12 years)

After 12th year remaining depreciable value will be divided over a


remaining period of 23 years for Transmission Lines and 13
years for Sub-stations.
Working Capital

Receivables
Maintenance spares
O&M expenses

: 2 months of fixed cost;


: 15% of O&M expenses;
: 1 month;

Description
Rate of Interest on Working

Regulation
Short Term Prime Lending Rate of State Bank of India;

Capital

O&M Expenses

2009-10

2010-11

2011-12

2012-13

2013-14

Norms for sub-station (Rs Lakh per bay)


765 kV

73.36

77.56

81.99

86.68

91.64

400 kV

52.40

55.40

58.57

61.92

65.46

220 kV

36.68

38.78

41.00

43.34

45.82

132 kV and below

26.20

27.70

29.28

30.96

32.73

Norms for AC and HVDC lines (Rs. Lakh per km)


Single Circuit (Bundled

0.537

0.568

0.600

0.635

0.671

0.358

0.378

0.400

0.423

0.447

0.179

0.189

0.200

0.212

0.224

0.940

0.994

1.051

1.111

1.174

0.627

0.663

0.701

0.741

0.783

0.269

0.284

0.301

0.318

0.336

443.00

468.00

495.00

523.00

553.00

conductor with four or more


sub-conductors)
Single Circuit (Twin &
Triple Conductor)
Single Circuit (Single
Conductor)
Double Circuit (Bundled
conductor with four or more
sub-conductors)
Double Circuit (Twin &
Triple Conductor)
Double Circuit (Single
Conductor)
Norms for HVDC Stations
HVDC Back-to-back

Description

Regulation

stations (Rs. Lakh per 500


MW)
Rihand-Dadri HVDC bipole

1450.00

1533.00

1621.00

1713.00

1811.00

1699.00

1796.00

1899.00

2008.00

2122.00

scheme (Rs. Lakh)


Talcher-Kolar HVDC bipole
scheme (Rs. Lakh)

ANNEXURE-D: OVERVIEW OF MARKET SCENARIO FOR 765 KV EQUIPMENT


MARKET

1. Demand for 765 kV Equipments in India


In a recent presentation made by Central Electricity Authority (CEA) (Aug 19, 2009), the Authority has
shown the broad requirements of the transmission sector in India for the 12 th Plan period. As per the
Authority, around 40-50 765/400 kV substations may be required on a pan India basis. The other relevant
transmission requirement is provided below:
Figure 4: Expected Transmission System Requirement (All India for 765 and 400 kV level)

Source: CEA

Besides the above, the authority has further estimated the quantum of key transmission components for
the proposed transmission network in the 12 th plan. The relevant excerpts of the same are provided it the
graphics below:

68 | P a g e

Figure 5: Details of 765 kV Equipment Requirement

Source: CEA

As can be seen from the figure, there is a significant amount of demand for the transmission system
equipments for 765 kV and 400 kV. It is therefore desirable that a critical examination of the supplying
capacity of such suppliers be examined to analyze the inherent risks in planning for transmission systems
which are likely to deploy such equipments. In the following paragraphs, IMaCS has analyzed the profile
of such potential suppliers and the likelihood for such matching supply of equipments for the huge
transmission power sector requirement in India.

2. Key Market Players in India supplying the Transmission and Distribution


Equipments
In the year 2007, the market for supply of transmission and distribution equipments was dominated by
ABB followed by AREVA, Siemens and BHEL. The market share of key players is provided in the figure
below:

69 | P a g e

Figure 6: Market Share of Players in 2007 (T & D)

Source: AREVA

However, in the specific segment for 765 kV transmission equipments, the market is largely dominated by
Crompton Greaves Limited with a share of 35%. However, from the year 2008-09 to 2009-10, the market
share has shown a declining trend for the local market players. The market saw the dominance of Chinese
and Korean players entering into the segment. The break-up of orders awarded by XYZ for the 765 kV
transmission equipments is provided in the graphics below:

70 | P a g e

Figure 7: Market Share of Players in 765 kV equipments for projects awarded by XYZ

Source: XYZ, Secondary Research


71 | P a g e

Similarly in the Tower supply segment, the year 2009-10 marked the entrance of several new players in
the market. A summary of the market share of players in the Tower supply segment is provided below:
Figure 8: Market share of players in the Tower Supply segment for projects awarded by XYZ

Source: XYZ, Secondary Research

As can be seen from the graphics above, several new players have entered into the transmission
equipment space and given the increase in demand for such equipments in the Asian region (specifically
China and India), the trend is likely to continue for the years ahead.
Entry of new players and cut throat competition will force the market players to enhance their delivery
capabilities in the future, however timely placement of orders will hold the key for such players to deliver
effectively.

3. Transmission Capacity Addition and Availability of Resources


72 | P a g e

IMaCS has analyzed the observations made by CEA and IEEMA regarding the envisaged capacity
additions in the Transmission sector in the country and the availability and preparedness of the market
players to match with the significant demand expected in the 11th plan.
As far as supply of insulators is concerned, IEEMA is it journal (Oct 2009) has stated that
It can be seen that the total capacity for Insulators presently available is very much more than what are
required for the 11th as well as 12th five year plans. The industry therefore is suffering as of today from
overcapacity and looks forward to speedier implementation of the announced programmes.
The industry has invested large amount of money for expanding capacities and infusion of latest
technology. It is well prepared to meet the requirement of Indian power sector needs. The industry is also
ready for further timely augmentation in the event the requirement goes up further too.
CEA has made an in-depth study to understand the requirement of critical input materials required to
support the capacity addition plan involving generation, transmission and distribution sectors for which
CEA has estimated the requirements of steel, cement and other inputs for thermal, hydro plants and also
for transmission and distribution works.
The details of the study and the material requirement are provided in the figure below.
CEA has further analyzed the data compiled by Centre for Monitoring of Indian Economy (CMIE) for the
year 2005-06. The data suggests that the Production of Cement, Aluminium, Copper and Zinc in the
country was 141.8 Million Tonnes, 1 Million Tonnes, .52 Million Tonnes and .29 Million Tonnes
respectively. Further, as per data from Ministry of Steel the availability (including imports) of Structural
Steel, Reinforcement Steel, CRGO Steel and Other Steel is 4.2 Million Tonnes, 12.5 Million Tonnes, 0.6
Million Tonnes and 24.8 Million Tonnes respectively.
CEA has accordingly cautioned that CRGO is a critical input for power transformers. In the past, nonavailability of the same has led to delays in Project implementation. Hence, it is necessary to encourage
domestic steel producers to go for indigenous production of CRGO. While on the other hand transformer
manufacturers have to do advance planning for their material requirement and place orders sufficiently in
advance.

Figure 9: Total Requirement of Various Materials for capacity addition planned during 11TH & 12TH Plan

73 | P a g e

Source: CEA

With respect to the supply of High Voltage Transformers i.e., 765 kV Class all the manufacturers
available in the field globally have evinced interest in Indian market to CEA which is also being
reflected by the entry of many new players being appointed by XYZ to supply the 765 kV
equipments.

4. Conclusion
From the above analysis, it may be deciphered that the there may actually be constraints in the
supply of transmission equipments by the local manufacturers on account of non-availability of raw
materials.
However, the supply from the domestic sources can be ensured subject to timely completion of
certain prerequisite activities by the Project Developers such as Standardization of Designs,
Standardization of Qualifying requirements for Vendors/Bidders, Route Alignment, Detailed Survey &
Soil Investigations based on new technology/techniques such as use of satellite imagery, GPS, total
stations, computer-aided tower spotting etc and Advance action for Environment & Forest Clearance and
Rehabilitation & Resettlement (R&R)

74 | P a g e

It may also be critical for XYZ to identify international vendors for supply of such equipments. At
the same time, there may also be a requirement for ensuring the quality of equipments supplied by
such new vendors.

Apart from the above, XYZ would also require addressing the following key concerns of the vendors
which have a direct bearing on the delivery capability of the vendors:

Timely Placement of Orders for capacity planning & utilization.

Long gestation period between NIT and Award of Contract.

Delays in Right of way and Forest clearances.

Technology up gradation in construction.

Acute skilled Manpower Crunch both Managerial and supervisory.

Non - Standardization of Specification among Utilities in many cases which is not updated for
many years.

Commercial conditions such as terms of payment, Price Variation clauses are often not rational
and lead to unrealistic price levels.

Fast resolution of Contractual Issues and early closure of contract

The thrust has to be placed on adequate planning of project activities in a timely manner so that the
bottlenecks in supply of input materials could be mitigated across the value chain by the suppliers.

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