Sterilite Jharsuguda Project

8/12/2019 Sterilite Jharsuguda Project

1/23

Sterilite power

Jharsuguda thermalpower project

Gr

Himank KhulbMainak Guh

Megha Jai

Rohit Kuma

Mar


2/23

Power sector analysis: importance othermal

58% power in India is generated by thermal power stations coal

Thermal power stations contribute 75% to the total electricgenerated in the country

Total installed capacity of coal based power plants in India is

87093MW There are nearly 100 thermal power stations in India


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Major power projects carried out so fa

Project name Location Capacity Player

Rosa thermal power

project

Uttar Pradesh 1200 MW Reliance p

Mundra Ultra Mega Power

Project

Gujarat

(SPV-CGPL)

4000 MW Tata Powe

Lanco Amarkantak Power

Project

Chhattisgarh 1920 MW Lanco

Dadaji Thermal power

project

Madhya Pradesh 1600 MW MPPGC

Bakreswar Thermal Power

Project

West Bengal 1050 MW WBPDCL

Sasan UMPP Madhya Pradesh 3960 MW Reliance p

Rosa thermal

power project

Uttar Pradesh 1200 MW Rs 3000 crore 70:30 Reliance po


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Who are the major private players in this se

Adani Power:Mundra thermal power project, Mundra,

Gujarat

Tirora thermal power project, Gondia,Maharashtra

Tata PowerMundra UMPP, Gujarat

Jindal group Jindal Mega power plant, Chhattisgarh

Lanco groupLanco Amarkantak power projectUdupi thermal power projectLanco-Kondapalli power projectAban combined cycle power project

Reliance energy Limited

Rosa thermal power proj

Dahanu thermal power pSamarlakota combined c

KSK

Wardha Warora power p

VS lignite power project,

INDIABULLS

Amravati thermal power Maharashtra


5/23

Domestic financing

Debt, equity, through issuing debentures by private com

Project financing in India is mainly limited to lending instlike PFC, IDBI, GIC, UTI, ICICI, SIDBI, IFCI, SCICI and LIC

International financing

External commercial borrowings, GDRs, syndicated loansfunding by multilateral institutions like world bank, ADB

Private Players Projects financing methods


6/23

NTPC power plant, Adra: 2X660 MW thermal power plant in Purulia district The estimated cost of project is Rs 7,700 crore and will be a joint venture

NTPC and Bharatiya Rail Bijlee Company Ltd (BRBCL) The equity sharing among indian railways and NTPC will be 26:74

Torrent power plant, Amreli: 2000 MW thermal power plant in Amreli, Gujarat Torrent Power and Gujarat Power Corporation Ltd. (GPCL) are developin In the first phase, An investment of about Rs 4500 crore for setting up 1,

plant

NTPC ltd, Anakapalle 4000 MW thermal power plant in andhraapradesh 100% funding by NTPC, no other partners State govt. facilitate land, water clearance and coal availability

Power Projects in the pipeline


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What is the governments policy regarding foreign/ private this sector?

Since Dec 12, up to 100% foreign investment is permitted in power sector,automatic route, for:

Generation and transmission of electric energy produced in hydroelectric, coal/lignitoil based thermal and gas based thermal power plants

Non-Conventional Energy Generation and Distribution

Distribution of elective energy to households, industrial, commercial and other users

Power Trading

Accordingly, any foreign investor can enter power sector through FDI rout

Electricity Act creates a conducive environment for investments in all segmindustry, both for public sector and private sector, by removing barrier to edifferent segments

Section 63 of the Act provides for determination of tariff by competitive b


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Megapower policy by GOI in Nov,1995

Exemption from customs duty on imports of power equipment Income-tax holiday regime with tax holiday period of 10 years

State governments to exempt supplies made to mega power planttax and local levies

UMPP scheme by GOI in 2005 Governments responsibility: land & water availability, c

environmental clearances and tie-up for power sale Private players responsibility: arrange funding, power equipm

technological tie-ups, execute and operate the project

BOO: Developed on a build, own and operate basis

ApproxRs.16,000 to 20,000 Crores in each UMPP assigned throughcompetitive bidding

What is the governments policy regarding foreign/ private invessector?

St ilit Jh d Th l P


9/23

Sterilite Jharsuguda Thermal PowerProjectAbout Sterilite:

A Vedanta group company and subsidiary of Sterilite Industries limited

Owns 2734 MW of captive power capacities and 600 MW of commercial p

4 plants * 600 MW to be built in Jharsuguda, Orissa

Total cost = Rs 8200 crore

Power generation capacity = 57 million units/day

Jharsuguda thermal power project:

Total land acquired = 296 acres; required = 839.5 acres

Capacity

Land Acquisition

Rampia coal blocks have been allocated to the company

Share of coals = 112.22 MT (5.2 MTPA for 20 years, sufficient for 1000 MW); coal required = 12.59 MTPA

Fuel linkages

St ilit Jh d Th l P


10/23

Sterilite Jharsuguda Thermal PowerProject

GRIDCO to purchase 718 MW from the project at OERC norms

Remaining to be sold on merchant basis or through long-term PPA

Offtake agreement

For sale to GRIDCO: will be evacuated by GRIDCO at bus bar of company

For merchant sale: will be evacuated by company via 400 KV LiLo being developed

Transmission

Environmental, air pollution, and water pollution approval received

Environmental clearances

Approval received from 40 mn gallon/day of water from Hirakund

Has constructed pipileline from Hirakund dam to plant site

Water supply


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Significance of the project

Company has signed an agreement with GRIDCO to give approx 30%

Rest 70% to be sold on a merchant basis and on long-term PPAs depemarket condition

CRISIL estimate- price of merchant power to fall from Rs 5.9 per unit 3.5-3.8 per unit in 2015

If the smelter at Jharsuguda increases its capacity, power will be suppaluminum plant through this power plant

Provides employment for construction to around 3000 workers

Permanent employment at plant to nearly 500 people


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Advantages that Jharsuguda has The demand for power will increase at a CAGR of 9.4%, driven by

growth, nothing has been done to tackle this, but Price of merchwill fall from an average of Rs 5.9 per unit in FY 10 to Rs 3.5-3.8 pFY15

Project has achieved financial closure and engineering, procuremconstruction order has been placed with SEPCO III

Environmental clearances have been granted

Agreement with GRIDCO to buy power

Low capital and proximity to fuel source is an advantage Capital cost per MW = Rs 34 mn, which is quite low compared to

average of Rs 45-50 mn per MW

Sale of power on merchant basis from Jharsuguda is beneficial


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Capital Structure Project financed, with Sterilite power as sponsor

Debt: Equity = 70:30

SBI leads the syndicate of banks, total loan amount = Rs 55,690 mn

Foreign loan from IFCL = $140 mn

Interest rate on loan = 11.5% for a period of 12 years

Valuation

Price of electricity = Rs. 3.9 per unit

Capacity divided between GRIDCO, Smelter, and CSEB

Cost for mining taken into account; Equivalent to 1000 MW coal will bfrom captive coal mines

For 1400 MW, coal prices taken as Rs 1000/ton


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An investment in Equity Shares involves a high degree of risk. Hence, one should be careful in considering a

in this Draft Red Herring Prospectus, including the risks and uncertainties described before making an inv

Shares. The risks and uncertainties are not the only risks that we currently face. Additional risks and

presently known or that is currently believed to be immaterial may also have an adverse effect on bu

operations and financial condition. If any of the risks, or other risks that are not currently known or aimmaterial, actually occur, business, results of operations and financial condition could suffer, the price

could decline, and you may lose all or part of your investment

Types of Risks

Political Risks Interest RateRisks Construction Risk Foreign ExchangeRisk Fuel Risk Transmission Risk De

The power risk in India is getting bigger day by day with no concrete plans in place for transmission & distri

critical role these projects might play in the future of this country, it is important to understand the risk f

with these projects in depth and mitigate them through changes in the underlying contracts and the pro

power generation

Risk Analysis


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Clearance & land acquisition related work that is mostly carried out by the state

Government delays adversely affecting the projects (e.g. Tilaiyya project delayed by 10 months

Environmental differences with the state leading to stalling of the work that may result in

interest of the investors from project during bidding

Political Risks

The standard debt to equity ratio for such a project is normally 70:30 & the debt can eith

currency or foreign currency

Foreign currency loans bring with them the risk of foreign exchange rates & the power plants m

much more. Sasan & Krishnapatnam UMPPs faced similar problems. Mostly floating rate is co

rates with derivatives

Interest Rate Risks

Delays in construction may cause projects to lose their bankability due to increase in IDC and

flows or feasibility, due to increase in the debt quantum

Since these projects are awarded through a competitive bidding route, they inherently have

of returns (IRR) and any delays may cause projects to become infeasible for the equity-holders

Construction Risks


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The projects differ significantly in their dollar denominated debt & almost all the risk is borne b

However, compared to the other risks borne by the developer, the foreign exchange rate ris

minimal impact

Foreign Exchange Risk

The low calorific value, high silica content and ash content of Indian coals significantly in

expenditure

This risk may be mitigated by washing or using ultra supercritical technology which inhere

capital expenditure

Fuel Risk

Lack of sophisticated transmission & distribution network in India & unavailability of sophist

art nationwide transmission grids lead to significant losses in transmission & distribution netwo

The risk can be mitigated by working on the feasibility of high voltage lines for transmission & d

Transmission Risk


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Payment and default risks are major risks for the lenders with off-take agreements signed prim

electricity boards

For mitigating the same, provisions for Letter of Credit backed by a credible escrow deposi

normally been included in the PPA

There can be situation where existing buyer does not pay & there is no new buyer

Payment Risks

Projects need to cover its costs irrespective of whether the power purchaser actually uses the e

In the event that he does not avail of power up to the contacted available capacity, the seller h

the power not procured. This gives rise to two part tariff mechanism

Demand Risk


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Risks at the Sterlite energy project

Alleged fraudulent and unfair trading practices in proceedings of Sterlite In

Limited (Sterlite Industries )

Directors & Promoters involved in criminal proceedings tarnishing the image of th

No prior operating history leading to difficulty to the investors in understandingfuture performances

Business, prospects, financial condition and results of operations will be material

affected if there are delays in commencing operations

Lack of additional financing to fund the construction & development projects

overall financial benefits

Lack of quality coals at competitive pricing which may lead to disruptions in the o

project Failure to enter into off-take arrangements in a timely manner and on t

commercially acceptable

The indebtedness incurred and the conditions and restrictions imposed

arrangements could adversely impact our ability to conduct our business operatio


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Risks at the Sterlite energy projectContd.

Increasing interest rates & exchange rates affecting business operations

If power evacuation facilities are not made available by the time the power pro

commence operations, it may result in significant transmission costs or they ma

to transmit any or all the power generated

Unavailability of stable & reliable transportation infrastructure impacting

operations, transmission & distributions

Dependencies on contractors or specialist agencies to construct and develop pow

exposure to risks relating to the timing or quality of their services, equipment and

Approvals, licensing, registrations & permits in the power industries

Relationship with joint venture partners to conduct mining operations at the sit

project

Significant costs of compliance with the local environmental rules & regulations

Estimates of coal reserves are subject to assumptions, and if the actual amounts

are less than estimated, or if the quality of the coal reserves is lower than estima

of operations and financial condition may be adversely affected


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Type of Risk Controllability Impact

Political Risk Moderate HighIncreas

delays

Interest Rate Risk Low High Increas

Construction Risk Low High Increas

Foreign Exchange Risk Low Moderate Increas

Fuel Risk Moderate Moderate Increas

Transmission Risk High Moderate Decrea

Demand Risk Low High Decrea

Payment Risk Low Moderate Decrea


21/23

Risk Mitigation measures For supply of coal, Jharsuguda project has got letter of assurance from Ma

fields limited for 9.51 MTPA

296 acres of land has already been acquired (against requirement of 839 ais sufficient for main plant area

Fuel risk due to shortage of Coal from coal india, is an industry-wide conce

Production of coal will increase at a CAGR of 7.3% and demand will increase at CAGR FY 09-14

Since this is an industry wide concern, if the overall price for coal goes up, tariffs are a

to move up in line A significant part of the energy offtake of Sterilite is likely to be from SEBs,

which have weak credit history. As a risk mitigating factor, sterilite energy hoption, under the PPA with SEBs, to sell the electricity to a third party in cadefault


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Add following more points

Cost of equity

UMPP -: what defines UMPP

FCFF/FCFE

Cost of equity for thermal power plant

ERR

Calculating social benefits


23/23

Thank You

Sterilite Jharsuguda Project

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