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financial analysis & risk management of hydro projects
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Summer Internship Programme
Report
On
Cost Estimates & Risk ManagementOf
R.H.E.P & N.J.H.E.P
Undertaken In
Satluj Jal Vidjut Nigam LtdAn ISO 9001:2000 Certified Co.
Institute Of Marketing & ManagementNew Delhi
Submitted By:Nipun MahajanRoll No: 06-J1-139Course: PGDBMYear: 2006-08
2 / 68
Undertaking
This is certified that the projects RHEP and NJHEP undertaken in Satluj Jal Vidyut
Nigam Ltd are done originally by me. The data used in the report is obtained from the
Corporate Planning Department of the company. The data collection, analysis and
preparation of the report is novel and original.
Nipun Mahajan
Roll No:- 06-J1-139
Batch : PGDBM
3 / 68
Table Of Contents
S.No Topic Page No
1 Acknowledgement 5
2 Executive Summary 6
3 Objective Of The Study 7
4 Research Methodology 8
5 Introduction 9
6 PROJECT –I Rampur Hydro Electric Project (RHEP 412 MW) 12
I. Salient Features 14
II. Sources Of Finance 15
III. Profitability Index Ranking 16
IV. Internal Rate Of Return (IRR) Ranking 17
V. Comparative Financial Analysis 18
VI. Application Of Funds 19
VII. Cost Revision 21
VIII. Findings: Impact Of Cost Revision
COG ,Tariff Calculation, Revision & Comparison 26
IX. Resettlement & Rehabilitation Schemes 30
X. Benefits from the project 32
7 PROJECT-II Nathpa Jhakri Hydro Electric Project 33
(NJHEP 1500MW)
I. Salient Features 35
II. Requirements 36
III. Sources Of Finance 37
IV. Tariff Calculation & Summary 39
V. Application Of Funds 41
VI. Cost Revision 43
VII. Findings:
4 / 68
S.No. Topic Page No.
Actual Vs Estimated Cost 44
Cost Variation, reasons and factors 45
VIII. Problems/challenges in the implementation and measures 48
IX. Benefits 50
8 Limitations of the study 52
9 Recommendations 53
10 Conclusion 54
11 Bibliography 55
12 Annexure
I. Glossary (Abbreviation & Definitions) 56
II. RHEP Annexure 59
III. NJHEP Annexure 64
5 / 68
Acknowledgement
I express my heartfelt gratitude to several people for their direct and indirect assistance in
the successful completion of my project. It is with the great pleasure, privilege and
humility that I express my sincerest gratitude to SJVNL staff Shimla-9 H.P who, despite
of their busy schedule, have happily rendered me valuable help and guidance.
My special and sincere thanks to Mr.B.R.Sethi (Dy.
Finance Manager) who guided me at every step of the summer internship. It was from
his regular assistance that I’m able to get practical exposure of the financial operations in
the company. The members of corporate planning department helped a lot in providing
valuable data for analysis.
Mr P.R.Murthi (Company Secretary) encouraged and inspired me to work on this
project and helped throughout in the project by providing the valuable facts and
information about RHEP & NJHEP.
I’m indebited to Prof.P.N.Rath, my teacher who directed me to work in this
company (who is always encountered with huge risks) and learning about Risk
Management helped a lot in furnishing my knowledge of the concerned topic.
Without these extended supports and co-operation, the project wouldn’t have
been the same.
Nipun Mahajan
Roll No: 06-J1-139
6 / 68
Executive Summary
This report deals with the ‘Risk Management’ & ‘Cost Estimates & its Impact’ of
Rampur Hydro Electric Project (RHEP) 412 MW and Nathpa Jhakri Hydro Electric
Project (NJHEP) 1500 MW. Both projects are financed by foreign banks to a large extent.
RHEP includes tedious evaluation of various financial institutions’ offers to
fulfill the funds requirements of this project. The evaluation is done with the help of
latest capital budgeting techniques. Since these hydro electric projects generally take
long time and finance in their formation till execution; as a result it becomes very
difficult to determine the exact amount of funds required by the projects. Their financial
requirement is determined on the basis of estimates after detailed financial analysis.
The finance includes a great deal of debt from different financial institutions which
increases the risk. The Risk Management is done with the help of Cost Revision of the
estimates at regular interval of time. The Revised Cost Estimates helps in
determining future financial requirements and there by help in curbing the risk.
The impact of cost revision on applied funds, cost abstraction, COG and tariff
calculation has been explained in great detail in the project.
The later part of report covers the Risk Management of NJHEP with the help of
revised cost estimates (RCE I, II, III) at regular intervals of time along with currency
wise application of funds and impact of loan repayment & other expenditures in
tariff calculation. The reasons and different factors of variation in cost and its impact
along with difference between actual and estimated costs (Why & How additional cost
occurred in the project?) have also been discussed. Besides the social and economic
upliftment of the people in its vicinity, the 1500 MW NJHEP has been designed to
generate 6950.88 MU of electrical energy in a 90% dependable year with 95 %
machine availability. Both NJHEP & RHEP have ushered in the social and economic
up-liftment of the persons living in the vicinity of the Project i.e. of society at large.
7 / 68
Objective Of The Study
The hydel projects are time consuming projects and involve a lot of money and time from
completion till execution; therefore there is always a huge financial risk. The future is
uncertain and estimation of cost adds to the risk. Therefore the objective of the study is to
determine and learn the process of cost estimation, cost revision, risk management in the
company and there by seek answers for the following questions:
How the offer of the various financial institutions is being evaluated?
What is the impact of Cost Revision?
Why Cost Variation Occurs?
Why additional cost occurs after every revision?
What is the difference between actual & estimated cost and why it occurs?
How the risk of the debt/loan is managed?
What is the relationship between time, risk and cost?
8 / 68
Research Methodology
In the projects the data collection and research is done with the help of various methods.
The data collection includes:
Primary Method:
Direct Personal Interview: The members of the corporate planning
department of the company were interviewed relating to facts, findings and
financial analysis.
Secondary Method:
Published Reports: The DPR of RHEP and NJHEP published by
the company consist of cost estimates and initial cost, used for revision.
The data analysis is done with the help of capital budgeting techniques such as NPV,
IRR, and Profitability index. The other methods include Cost/Benefit Ratio, Ranking
Methods and Graphical methods such as pie charts, tables, bar charts, area charts for
effective evaluation, projection and decision making.
9 / 68
Introduction/ About SJVNL
The Satluj Jal Vidyut Nigam Limited – SJVN (formerly Nathpa Jhakri Power
Corporation Limited - NJPC ) was incorporated on May 24, 1988 as a joint venture of the
Government of India ( GOI ) and the Government of Himachal Pradesh (GOHP) to plan,
investigate, organize, execute, operate and maintain Hydro-electric power projects. The
present authorized share capital of SJVNL is Rs.4500Cr.
The Nathpa Jhakri Hydro – Electric Project – NJHEP (1500 MW) was the first project
undertaken by SJVNL for execution. In addition to the financial assistance from the
World Bank, SJVN has also been financed as loan by a Consortium of European
Banks, the Power Finance Corporation (PFC) and various domestic commercial
banks.
Besides NJHEP, the present hydro project is RHEP (412 MW) and future projects to be
undertaken by SJVNL are Luhri Hydro Electric Project (LHEP 700 MW), Khab Hydro
Electric Project (KHEP 636 MW), Devsari Hydro Electric Project(DHEP 300MW),
Jhakol Sankri Hydro Electric Project(JSHEP 33 MW).
Besides the social and economic upliftment of the people in its vicinity, the 1500 MW
NJHEP has been designed to generate 6950.88 MU of electrical energy in a 90%
dependable year with 95 % machine availability. It is also providing 1500 MW of
valuable peaking power to the Northern Grid. Out of the total energy generated at the bus
bar, 12 percent is supplied free of cost to the home state i.e. Himachal Pradesh. From the
remaining 88% energy generation, 25% is supplied to HP at bus bar rates. Balance power
has been allocated to the beneficiary states / UTs of Northern Region by Ministry of
Power, Government of India.
Besides above, indirect benefits have also accrued to the region by way of increase in
agriculture and industrial production. In addition, the project has provided gainful
employment to a large number of skilled and unskilled workers and has also opened
the landlocked hinterland by providing essential facilities such as schools, hospitals
10 / 68
etc. for the people of the area. Thus, 1500 MW NJHEP has ushered in the social and
economic up-liftment of the persons living in the vicinity of the Project i.e. of society at
large.
Financial Position Of SJVNL:
308.3 298.5
561.5498.2
0
100
200
300
400
500
600
AM
OU
NT
Rs/
Cr
31-3-05 31-03-06YEAR ENDING
BEFORE TAX
AFTER TAX
The Financial Position of SJVNL has improved from the past two years. The sudden
increase in the profit is a result of control over expenditures besides increase in the sales.
The available profit of the SJVNL is used as one of the sources of finance in the form of
reserves & surplus for the purpose of repayment of loans and financing of the current &
future projects.
11 / 68
Awards And Honours
On 28th August 2006 the Satluj Jal Vidjut Nigam Limited (SJVNL) receives
Industry Excellence Award and Udyog Rattan Award of the Institute Of
Economic Studies New Delhi.
On 31st Aug 2006 the Satluj Jal Vidjut Nigam Limited (SJVNL) receives
Greentech Silver Award for upgrading ecological balance in the projects of the
company.
The Upcoming Rampur Hydro Electric Project 412 MW, also received the
Greentech Bronze Award for institutional organized dumping activities.
On 3rd Sep 2006 the Satluj Jal Vidjut Nigam Limited (SJVNL) receives Industry
Excellence Award from Delhi Telgu Academy.
12 / 68
PROJECT –I
13 / 68
14 / 68
Salient Features:
1) Location: Rampur (H.P)
2) River: Satluj
3) Stretch: 15 Km Down Stream
4) Tail Race: Development of 1500mw (6x250) of NJHEP
5) Objective: Power on demand
6) Availability: 412mw by 2011
7) A 15.088 km long, 10.50 m diameter circular concrete lined Head Race Tunnel.
8) Energy generation of 1969.69 Gwh during a 90 % dependable year, with 95% machine availability.
Hydro : Thermal
Present 25 : 75
After RHEP 40 : 60
Requirements:
Funds
♠ Before Revision: Rs.1984.19 Cr ( Till 03-05)
♠ After Revision: Rs.2047.03 Cr (After 03-06)
Water: Desilted water from tail race of NJHEP
Land: 101-38-08 Hectares of Land
♠ 69-37-62 hectares: Forest land
♠ 32-00-46 hectares: Private land
Time: 60 months
15 / 68
Sources Of finance:
Debt-Equity Ratio
1388.93
595.25
EQUITY
DEBT
Amount in Rs/Cr
The sources of finance include equity and debt. The debt equity ratio is 70:30. The loan is
provided by the Industrial Bank for reconstruction & Development (IBRD) under
Variable Spread Loan (VSL) scheme. The IBRD is chosen after the detail analysis of
different domestic and foreign financial institutions.
Equity Capital Classification
17%4%
79%
Govt Of India
Govt Of Himachal Pradesh
INTERNAL SOURCES
The equity capital consists of Capital from Govt. Of. India, Govt. Of Himachal Pradesh
and Internal Sources (SJVNL fund)
16 / 68
Evaluation Of The Financial Offers
Profitability Index Ranking
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
P-I
ND
EX
PFC REC IBRD(FSL) IBRD(VSL) BNP KFW
SOURCES OF FINANCE
PROFITABILITYINDEX RANKING152346
The above bar diagram shows the profitability index ranking of various financial
institutions. The IBRD (VSL) is chosen even though the KFW is at the top, but KFW
does not provide loan for the civil works. The profitability index is one of the methods
used to determine which financial institution is economical. Since banks of different
countries deals in different currencies, the profitability index method is suitable for this
purpose. The higher the profitability index, the higher will be the rank of the respective
bank.
Note: For calculation refer annexure: RHEP LIBOR
17 / 68
Internal Rate Of Return Ranking
8.888.16
7.51 7.438.43
5.5
0123456789
IRR
(%
)
PFC REC IBRD(FSL) IBRD(VSL) BNP KFW
FINANCIAL INSTITUTIONS
IRR RANKING15236 4
The above bar diagram shows the Internal Rate of Return ranking obtained after analysis
of the inflows and outflows data provided by the above mentioned financial institutions.
The lower the IRR the higher will be the rank. Although KFW has rank one but the
Nigam has chosen IBRD(VSL) as full loan mentioned was not available from KFW.
Note: For interest rate refer annexure: RHEP LIBOR
18 / 68
Summary Of Comparative Financial Analysis Of Different Financial
Institutions
SOURCES OF FINANCE PFC REC IBRD(FSL) IBRD(VSL) BNP KFW
CURRENCY Rs/Cr Rs/Cr Rs/Cr Rs/Cr USD/m EURO/m
DRAWN AMOUNT 1388.928 1388.928 1388.928 1388.928 308.651 96.000
INSURANCE PREMIUM DUE 0 0 0 0 28.204 0
INSURANCE PREMIUM
FINANCED 0 0 0 0 0 0
INTEREST DUE 996.560 883.753 596.383 586.755 133.763 23.777
IDC 312.075 277.397 167.545 164.845 37.579 6.687
INTEREST CAPITALISED 312.075 277.397 167.545 164.845 37.579 6.687
AGENCY FEE 0.225
REPAYMENT 1388.928 1388.928 1388.928 1388.928 308.651 96.000
FRONT END FEE 1.389 1.389 3.472 3.472 1.073 0.288
COMMITMENT FEE 0 0 8.710 6.259 1.110 0.432
HEDGING COST 0 0 38.087 38.087 8.507 2.426
GUARANTEE FEE 0 0 143.241 143.241 8.507 9.869
TOTAL OUTFLOW 2386.870 2274.060 2178.810 2166.740 514.630 132.790
PV OF TOTAL OUTFLOWS 1130.000 1069.000 1036.000 1028.000 244.000 62.680
PV OF TOTAL INFLOWS 1145.000 1145.000 1145.000 1145.000 251.000 79.680
PROFITABILTY INDEX 1.010 1.070 1.110 1.114 1.030 1.271
PROFITABILTY INDEX
RANKING 6 4 3 2 5 1
IRR 8.88% 8.16% 7.51% 7.42% 8.43% 5.50%
IRR RANKING 6 4 3 2 5 1
19 / 68
Application Of funds
Before Cost Revision:
38%
1%12%3%
33%
13% 0%
MAJOR CIVIL WORKS
HYDRO MECH. WORKS
INFRASTRUCTURE WORKS
ESTABLISHMENT
ELECTRO-MECH.WORKS
IDC
OTHER FINANCIAL CHARGES
TOTAL COST:Rs.1984.19Cr
The pie chart shows the application of funds in RHEP. Majority of the funds is applied in
‘Major Civil Works’ and ‘Electro-Mechanical Works’. The infrastructure and IDC share
the funds in the same proportion. The abstraction of the cost is done on the basis of the
estimates made after detailed analysis of the financial requirements of the project.
20 / 68
After Cost Revision:
39%
1%12%3%
32%
13% 0%
MAJOR CIVIL WORKS
HYDRO MECH. WORKS
INFRASTRUCTURE WORKS
ESTABLISHMENT
ELECTRO-MECH.WORKS
IDC
OTHER FINANCIAL CHARGES
TOTAL COST:Rs.2047.03Cr
The project cost was revised on 03-2006 as a result the total cost of project rises from
Rs.1984.9 Cr to Rs.2047.03Cr. The abstraction of the cost shows slight increase in the
Major civil works. But Electro mechanical works funds requirement decline by 1%. The
additional cost occurred due to delay in implementation and losses on account of flash
floods in the river thereby resulted in increasing the overall cost of project.
21 / 68
Cost Component After Revision
0
100
200
300
400
500
600
700
800
900
Amou
nt R
s/Cr
CIVIL WORKS HYDRO MECH. INFRA-STRUCTURE
ESTD ELECTRO-MECH IDC OTHERS
COST COMPONENTS
31-3-0531-3-06
776811
661211
245234
646
1.5
260248
1.369
646
The Above Bar diagram shows the variation in the cost components after Revised cost
Estimates (RCE). After revision each component has shown some increase. The basis for
cost revision are ‘Wholesale Price Index (sep 2006) published by RBI’, Labour cost
2006 as per notification of the Govt., Loan Interest rate (LIBOR 06), Indian Oil
Corporation Price lists, SAIL price lists.
22 / 68
Civil works Cost Revision
0
50
100
150
200
250
300
350
400
450
Rs/C
r
MATERIALS LABOUR MACHINERY MISC.
COST COMPONENTS
31-3-06
31-3-05
135
243
135226
423
407
143 142
The updated cost of civil works is shown in the above bar diagram. The material cost
changes as per the revised cost of the material component in the wholesale price index
(sep 2006 prices). The Labour component cost increases as per the notification of the
Govt. The machinery component includes the cost of fuel, machinery and transport. The
weighted mean of fuel index, machinery escalation and transport index is used to revise
the machinery component cost. There is increase of 3.92% in materials cost, 7.69% in
Labour, 5.83% in machinery and 4.96% in the miscellaneous component there by
showing 5.31% increase in the Civil Works cost. The table of cost revision is Shown
Below:
23 / 68
CIVIL COST REVISION
SNO PARTICULARS Rs/Cr1 COST OF CIVIL WORKS AS ON 03-05 1088.63
DEDUCTIONS2 PRELIMINARY 29.623 LAND 59.024 MAINTAINENCE 8.585 LOSSES ON STOCKS 0.866 ESTABLISHMENT 66.367 T&P 10.078 INDIRECT EXPENSES 10.52
185.03BALANCE TO BE ESCALATED 903.6
A MATERIAL COMPONENT(45% OF THE ABOVE) 406.62% INCREASE ON PROJECTED BASIS 3.92%INCREASE IN AMOUNT 15.94ESCALATED MATERIAL AMOUNT 422.56
B LABOUR COMPONENT(25% OF THE ABOVE) 225.9% INCREASE 7.69%INCRASE IN AMOUNT 17.37ESCALATED LABOUR AMOUNT 243.27
C MACHINERY COMPONENT(15% OF THE ABOVE) 135.54% INCREASE 5.83%INCREASED AMOUNT 7.9ESCALATED MACHINERY AMOUNT 143.44
D MISC. COMPONENT(15% OF THE ABOVE) 135.54% INCREASE 4.96%INCREASE IN AMOUNT 6.72ESCALATED MISC. AMOUNT 142.26
UPDATED COST OF CIVIL WORKS=A+B+C+D 951.53
OVERALL % INCREASE IN COST 5.30%Notes: The detail of the escalation and revision of each sub component is given below:
24 / 68
AREVISED COST OF MATERIAL COMPONENT OFCIVIL COST
S.NO YEARGENERALCOST
%INCREASE
1 2001 424 02 2002 441 4.013 2003 458 3.854 2004 477 4.155 2005 496 3.986 2006 514 3.63
TOTAL 19.62
AVERAGE INCREASE 3.92%
BREVISED COST OF MATERIAL COMPONENT OFCIVIL COST
S.NO PARTICULARS YEARAMOUNTRs/Cr
1 COST OF LABOUR ON MARCH 05 225.9a) WAGES 31-03-05 65b) WAGES 31-03-06 70
% INCREASE 7.69%(AS PER THE NOTIFICATION OF THE GOVT)
CREVISED COST OF MACHINERY COMPONENT OFCIVIL COST
S.NO T & P CHARGEABLE TO PROJECT (CIVIL COST)AMOUNTRs/Cr
1 TOTAL COST OF SPECIAL T&P MARCH 05 135.542 COST OF SPECIAL T&P 3.773 MACHINERY & TRANSPORT EQUIPMENT
COMPONENT WEIGHTFUEL INDEX 14.2MACHINERY 8.4TRANSPORT 4.3
WEIGHTED MEAN 5.83
DREVISED COST OF MACHINERY COMPONENT OFCIVIL COSTINDEX NO. OF WHOLESALE PRICE FOR ALLCOMMODITIES
YEARAMOUNTRs/Cr
2005 1.892006 1.99
% INCREASE 4.96%
25 / 68
Tariff Calculation
PROJECT RHEP (412MW)TARIFF CALCULATION FOR THE FIRST YEAR
DEBT EQUITY RATIO 70:30S.NO PARTICULARS AMOUNT UNITS
1 TOTAL COST OF PROJECT 1984.18 Rs/Cr
a) EQUITY 595.254
b) LOANS 1388.9282 ANNUAL ENERGY GENERATION (90% Dependable year) 1969.69 M.U
3 AUXILIARY CONSUMPTION @ 0.5% OF THE ABOVE 9.85 M.U
4ENERGY AVAILABLE AFTER AUXILIARYCONSUMPTION 1959.84 M.U
5 TRANSFORMATION LOSSES @0.5% OF THE ABOVE 9.80 M.U
6ENERGY AVAILABLE AFTER TRANSFORMATIONLOSSES 1950.04 M.U
7 FREE POWER TO Govt Of Himachal Pradesh @12% 234.01 M.U
8ENERGY AVAILABLE FOR SALE AFTER FREE POWERDISTRIBUTION 1716.04 M.U
9 FIXED RUNNING CHARGESA) CAPACITY CHARGES1. INTEREST ON LOAN @7.5% 104.172. DEPRECIATION CHARGES 138.89TOTAL CAPACITY CHARGES 243.06 Rs/CrB) ENERGY CHARGES1. OPERATION & MAINTENANCE CHARGES(O&M) @1.5% 29.76 Rs/Cr2. RETURN ON EQUITY @ 14% 83.34 Rs/Cr3 INTEREST ON WORKING CAPITAL@ 9%3.1) O&M CHARGES @1 MONTH 2.48 Rs/Cr3.2) TWO MONTHS AVERAGE BILLINGa) CAPACITY CHARGES 40.51 Rs/Crb) ENERGY CHARGES 8.85 Rs/Crc) MAINTAINENCE & SPARES CHARGES 19.84 Rs/CrWORKING CAPITAL 81.68 Rs/CrINTEREST ON WORKING CAPITAL @ 9% 7.3512 Rs/CrTOTAL ENERGY CHARGES 120.4512 Rs/CrTOTAL CHARGES 363.5112 Rs/Cr
10SALE RATE AT BUS BAR AFTER 12% FREE POWER TOGOHPa) CAPACITY CHARGES 142
b) ENERGY CHARGES 70TOTAL 212 PAISE/UNIT
Note: For 35 years tariff calculation refer annexure: RHEP tariff 35 years
26 / 68
Findings
Impact Of Cost Revision:
A) Cost Of Generation Comparison
COST OF GENERATION
0
20
40
60
80
100
120
140
160
180
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
YEARS
PAIS
E/U
NIT
AFTER REVISIONBEFORE REVISION
The above diagram shows depicts the comparison in the cost of generation for 35 years
before and after revision. The cost of generation (paise /unit) follows the same pattern
even though there is increase in the COG after cost revision.
Notes:
A: It shows the decline in the cost of generation from 11th year. The cost of generation
includes payment of interest on loan from 1-10 years.
B: It shows the period from 11-20 years
C: There is increase in the COG of electricity as there is no refund of the depreciation
amount which results in the COG escalation.
A
B
C
27 / 68
B) Cost Benefit Ratio
ECONOMIC IRR AND COST BENEFIT ANALYSISPROJECT RHEP 412 MWPROJECTCOST 2047.03 Rs/Cr
YEAR EXPENDO&MExp W. CAP
TOTALOUTFLOWS
ENERGY(mu) TARIFF
AMOUNTCr
NETAMOUNT
1* 337.97 337.97 -337.972* 334.91 334.91 -334.913* 489.03 489.03 -489.034* 417.11 417.11 -417.115* 207.6 207.6 -207.601 30.7 83.67 114.38 1752.34 2.36 413.55 299.172 30.7 30.71 1752.34 2.3 403.04 372.333 30.7 30.71 1752.34 2.24 392.52 361.814 30.7 30.71 1752.34 2.18 382.01 351.305 30.7 30.71 1752.34 2.12 371.50 340.796 30.7 30.71 1752.34 2.07 362.73 332.027 30.7 30.71 1752.34 2.01 352.22 321.518 30.7 30.71 1752.34 1.95 341.71 311.009 30.7 30.71 1752.34 1.89 331.19 300.48
10 30.7 30.71 1752.34 1.84 322.43 291.7211 30.7 30.71 1752.34 0.7 122.66 91.9512 30.7 30.71 1752.34 0.71 124.42 93.7113 30.7 30.71 1752.34 0.72 126.17 95.4614 30.7 30.71 1752.34 0.73 127.92 97.2115 30.7 30.71 1752.34 0.75 131.43 100.7216 30.7 30.71 1752.34 0.76 133.18 102.4717 30.7 30.71 1752.34 0.77 134.93 104.2218 30.7 30.71 1752.34 0.79 138.43 107.7219 30.7 30.71 1752.34 0.8 140.19 109.4820 30.7 30.71 1752.34 0.82 143.69 112.9821 30.7 30.71 1752.34 1.39 243.58 212.8722 30.7 30.71 1752.34 1.41 247.08 216.3723 30.7 30.71 1752.34 1.42 248.83 218.1224 30.7 30.71 1752.34 1.44 252.34 221.6325 30.7 30.71 1752.34 1.46 255.84 225.1326 30.7 30.71 1752.34 1.4 245.33 214.6227 30.7 30.71 1752.34 1.42 248.83 218.1228 30.7 30.71 1752.34 1.44 252.34 221.6329 30.7 30.71 1752.34 1.46 255.84 225.13
28 / 68
30 30.7 30.71 1752.34 1.48 259.35 228.6431 30.7 30.71 1752.34 1.48 259.35 228.6432 30.7 30.71 1752.34 1.5 262.85 232.1433 30.7 30.71 1752.34 1.53 268.11 237.4034 30.7 30.71 1752.34 1.56 273.37 242.6635 -178.66 30.7 -83.67 -231.622 1752.34 1.59 278.62 510.24
Total 1607.96 1075 0 2682.808 61331.9 50.49 8847.56 6164.76
The economic Internal Rate Of Rate: 11.64%.
The Cost Benefit ratio is 1:3.2
29 / 68
C) Tariff Comparison After Revision
0
50
100
150
200
250
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35YEARS
PA
ISE
/ U
NIT
AFTER REVISION
BEFORE REVISION
The above diagram shows depicts the comparison in the Tariff/Unit for 35 years to be
charged from the consumers for the electricity to be provide to them, before and after cost
revision. The Tariff (paise /unit) follows the same pattern even though there is increase in
the COG and Tariff after cost revision.
Notes:
A: It shows the decline in the cost of generation results in the decrease in
Tariff/unit from 11th year. The cost of generation includes payment of interest on
loan from 1-10 years.
B: It shows the period from 11-20 years
C: There is increase in the COG of electricity as there is no refund of the
depreciation amount which results in the COG escalation, ultimately results in the
Tariff/ unit to be charged from the consumers.
A
B
C
30 / 68
Resettlement and Rehabilitation Schemes
The Resettlement and Rehabilitation schemes are launched by SJVNL for the project
affected families of RHEP.
It includes:
Family
Project Affected Area/ Zones
PAF:
♠ With land
♠ Without land
Shopkeepers displaced by the project
Granted Resettlement
S.No Particulars Before After Relief Amount
1 Land Before Acquisition >= 5 Bighas <=1 Rs.65000/-
2 Land Before Acquisition <=5 Bighas <=1 Rs.55000/-
3 Land Holding Nil 1-5 Rs.45000/-
4 Cattle shed acquired/ Family Rs.5000/-
5 Family:
Case Land less or house less or both
Will be provide an independent house with a buildup plinth area of 60 sq mt. Or a plot
to buildup a house- 60sq mt + Construction cost of the house @ Rs.3000/ sq.mt
Case Constructed house on his own with own land > =60 sq mt
Rs3500/- sq.mt
Case Constructed house on his own with own land <60 sq mt
Amount as per pro- rata basis
6 Shopkeepers:
Allotment of shops in the market complex; wherever the Nigam constructs such
market place + Rs.10000/- OR Rs.40000/-
7 Infrastructural facility such as water supply, sewage, drainage, electricity, street
& approach paths ( Included in the project cost)
31 / 68
Employment:
♠ One Member, each of PAF: Employment in the category of skilled, semi-skilled,
unskilled workmen:- according to the fulfillment of the requirements.
♠ Land is acquired but not in the project:- This is a case of secondary employment;
provision for their employment will be created.
♠ Scholarship for the PAF (Professional or Vocational course).
Other Facilities:
♠ PAF will be provided infrastructural up gradation schemes such as:- mobile health
centre, internal roads, approach roads, drinking water supply schemes,
community /welfare centres, infrastructural facilities for the schools, street
lighting.
♠ Awareness programmes /camps for the PAF (wef sep-06)
♠ Primary school
♠ Transportation @ project cost till house/ shop gets constructed or Rs.5000/-
32 / 68
Benefits of RHEP 412 MW
On completion, the project will generate approximately 412 mw of power and
1770 GWh of electricity in a 90% dependable year.
The Power generate by RHEP will feed the Nothern Indian Energy Grid,
directly benefiting consumers in the state of north India and improving
availability of power at reasonable cost.
Sale of power will provide the state of Himachal Pradesh with a royalty
benefit of 12% of the power generated; equivalent to $10 million each year in
addition to state share in the plant’s dividends.
Nathpa Jhakri Hydro-Electric Project (NJHEP) is one of the most eco-friendly
Projects in the country. Being run of the river project, it has minimum impact
on ecology of the area and least disturbance to flora and fauna.
This project will generate in to Northern Region Grid about 7,000 GWh of
electricity each year. In doing so, it will delay the necessity of the
construction of either coal or gas fired thermal plant of the same capacity, and
will thus hugely reduce India’s green house gas emissions and positively
impact on India’s global warming effect.
33 / 68
PROJECT-II
34 / 68
35 / 68
Salient Features:
Nathpa Jhakri Hydro-Electric Project (NJHEP) is one of the largest underground
power house in the country to house six units of 250 MW each and aggregate
capacity of 1500MW in a single underground cavern.
The underground desilting complex would be one of the largest underground
complexes in the world to exclude sediments particles above 0.2mm so as to
prevent these from entering into head race tunnel and in turn in to the turbines.
27.4km long head tunnel is one of the longest power tunnels in the world.
301m deep surge shaft is one of the deepest surge shafts in the world.
Nathpa Jhakri Hydro-Electric Project (NJHEP) is one of the most eco-friendly
Projects in the country.
Being run of the river project, it has minimum impact on ecology of the area and
least disturbance to flora and fauna.
The Major Civil Works of NJHEP were awarded during June – Sep. 1993
and the construction works commenced in early 1994.
The Project stretches over a length of about 50 kms. from the Dam site to the
Power House site, on the Hindustan-Tibet Road (NH-22), which also connects
the rail head to the Project.
36 / 68
Requirements:
Financial Requirements:
♠ Initial Cost: Rs.1678 Cr
♠ After First Revision: Rs.4337.9 Cr
♠ After Second Revision: Rs.7666 Cr
♠ After Third Revision:Rs.8563 Cr
Time Requirements:
♠ Preconstruction Activities: 1.5 Years
♠ Main construction works: 5.5 Years
Water Requirements: Direct intake from Satluj River
Land Requirements: It Includes
♠ Category wise: Govt Land and Private Land
♠ Rehabilitation Package
Vendors:
♠ For Electro mechanical equipment:
M/s Electrowatt Engineering Switzerland.
M/s Nippon Koei Japan.
M/s WAPCOS India
♠ Implementing Agency
M/s WAPCOS India
CWC
37 / 68
Sources Of Finance
50%
50%
EQUITY LOAN
`
Initially the project cost was Rs.8495.03 Cr. which was equally obtained from both major
sources of finance. i.e Rs.4247.5 Cr each from equity and loans.
Equity Classification:
75%
25%
GOIGOHP
The fund from equity was being obtained from Govt. Of India and Govt. Of Himachal
Pradesh. The Govt. Of India provided Rs.3185.635 Cr and Govt. Of Himachal Pradesh
Rs.1061.879Cr for the major construction works of the project.
38 / 68
Loan Classification:
36%
10%34%
20%
IBRD
BUYERS CREDIT
PFC
OTHER BORROWINGS
The arrangement of loan was made from different financial institutions viz. Industrial
Bank For Reconstruction & Development (Rs.1537Cr), External Commercial Borrowings
(Rs.434.63Cr), Power Finance Corporation (Rs.1438Cr) and Other Domestic Borrowings
(Rs.838.986Cr).
39 / 68
Tariff Calculation
PROJECT NJHEP 1500MWTARIFF CALCULATION FOR THE FIRST YEAR
SNO PARTICULARS
AMOUNT
UNITS
1 TOTAL COST OF PROJECT 8495.03 Rs/CrA)EQUITY1)GOVT OF INDIA 3185.642)GOVT OF HIMACHAL PRADESH 1061.88B) LOANS 4287.03
2ANNUAL ENERGY GENERATION (90% DEPENDABLEYEAR) 6950.88 M.U
3 AUXILIARY CONSUMPTION 0.5% OF THE ABOVE 48.66 M.U
4ENERGY AVAILABLE AFTER AUXILIARYCOMSUMPTION 6902.22 M.U
5 TRANSFORMATION LOSSES 0.5% OF THE ABOVE 34.51 M.U
6ENERGY AVAILABLE AFTER TRANSFORMATIONLOSSES 6867.71 M.U
7 FREE POWER TO GOHP @12% 824.13 M.U
8ENERGY AVAILABLE FOR SALE AFTER FREE POWERDISTRIBUTION 6043.59 M.U
9 ANNUAL CAPACITY ENERGYDEPRECIATION (ACCTUAL) 209.04DEPRECIATION (ADVANCED) 215.71SUB TOTAL 424.75INTEREST ON LOAN 391.80INTEREST ON EQUITY TO LOAN @9% 152.91TOTAL CAPACITY CHARGES 969.46 Rs/Cr
10 ENERGY CHARGESA) O&M EXPENSES 1.5% OF COST OF PROJECT 127.43B) RETURN ON EQUITY @ 14% 356.79C) INTEREST ON WORKING CAPITAL 33.98TOTAL ENERGY CHARGES 518.20 Rs/Cr
11 TOTAL ANNUAL CHARGES 1487.66 Rs/Cr
SALE RATE AFTER 12% FREE TO GOHPA) CAPACITY CHARGES 160.41B)ENERGY CHARGES 85.74TOTAL 246.15 P/UCOST OF GENERATION 164.66 P/U
40 / 68
Tariff Summary
NET TARIFF Rs./KWH
0
0.5
1
1.5
2
2.5
3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
YEARS
TARI
FF@
Rs/
KW
H
The above area chart shows the net tariff for the next 35 years (starting from the year
2003-04) to be charged from the public for the electricity to be provided to them. The
first 10 years of tariff calculation includes major payments such as interest on loan,
depreciation (actual & advanced) & other energy charges. The tariff from the 11th year
onwards (although declined) shows some escalation due to increase in the cost of project
as the time progress. The cost of project increases by 4% compounded annually thereby
resulting in increase in the net tariff.
Note: For detail calculation & summary refer annexure: NJHEP Tariff 35 Years
41 / 68
Application Of Funds
Currency Wise Allocation
9% 21%
6%
6%
7%6%6%
38%
1% 0.5%
USDCADD.MARKI.T.LIRAGBPCHFNOKFRFEUROJ.YEN
The given pie chart shows the currency wise allocation of the funds available in different
currencies. The major amount was available in U.S.Dollar. Although there is healthy
contribution in Canadian Dollar and Deutsche Mark but there is handy contribution in
Italian Lira, British Pound, French & Swiss Frank so as to maintain balance while making
payment. Since fund was available in different currencies, there arises a difference in the
foreign exchange rate. Therefore in order to minimize the hedging cost, the NIGAM has
adopted the approach of different currencies.
Notes:
For Abbreviations refer annexure : glossary
For Exchange rate used refer annexure: exchange rates used
42 / 68
Converted Amount
0
100
200
300
400
500
600
700
800
900
1000
Rs/C
r (co
nver
ted)
USD CAD D.MARK I.T.LIRA GBP CHF NOK FRF EURO J.YEN
Currency
945
223
150173
143158
514
1411
156
The above bar chart displays the converted amount available from different banks in
different currencies. The major amount was obtained in United States Dollar ($US)
approved by the World Bank and granted by International Bank For Reconstruction &
Development (IBRD). Although there was healthy contribution in Deutsche Mark,
Canadian Dollar, Italian Lira, British Pound, Swiss & French Frank.
43 / 68
Cost Revision
CIV
IL W
OR
KS
GA
TE
S &
HO
IST
S
EL
EC
TR
O.M
EC
H W
OR
KS
INFR
AST
RU
CT
UR
E
EST
D
IDC
OFC
TO
TA
L
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
CO
ST-R
s/C
r
ABSTRACTS
INITIALRCE-IRCE-IIRCE-III
The area chart shows the impact of different cost revisions on initial cost of project made
at different period of times. The initial cost of the project was Rs.1678 Cr. at 1989 which
increases to Rs.8563Cr. after Revised Cost Estimates III(RCEIII) at 2003. First revision
of the cost estimates was done in March 1993. The project took a long time in its
completion that it required two more cost estimates revision (RCE II in june 1998 & RCE
III in 2002), so as to determine the adequacy of the funds available for the NJHEP
project. The civil works component shows successive increase in its cost to completion.
The Interest During Construction (IDC) has shown almost twice increase after second
Revised Cost Estimates. The reasons for delay in the project have been explained in the
‘problems faced in the project’ section of the report.
Note: For details of the cost revision of each component refer annexure NJHEP revision.
44 / 68
Findings
A) Estimated Cost Vs Actual Cost
Civil Cost
-200
0
200
400
600
800
1000
1200
1400
PREL
IMIN
ARY
LAND
DAM
HRT
1
HRT
II
GAT
ES &
HOIS
TS
ADDI
TIO
NAL
POW
ERHO
USE
SALE
BUIL
DING
CIVIL COST ABSTRACTS
Rs./C
r
ESTIMATESACTUAL
55.751.06 39.594.32
894.9
1119
1001.81
863.6
1250.51277.5
138.2150.1 123.6
792752
-75
70 91
Total Cost
0500
100015002000250030003500400045005000
CIVIL WORKS ESTD ELEC-MECH IDC
TOTAL COST PARTICULARS
Rs.
/Cr
ESTIMATEDACTUAL
4450 4681
400497
13761663
1762
2263
Note: Refer annexure NJHEP actual & estimated.
45 / 68
B) Variation In Cost
ADDITIONAL COST AFTER RCE-III
94.0964.57
191.88
75 60 6014.57
60.73
-179.3
-200
-150
-100
-50
0
50
100
150
200
250
RAISING DAMHEIGHT
DESILITINGCHAMBERS
EXTRA ITEMS COST DUE TODELAY
ACCELERATIONMEASURES
INSURANCEPREMIUM
CAT PLAN ESTD EXP REDUCTION INCIVIL & ESTD
PARTICULARS
COST
Rs/C
r
The above chart shows the component wise additional fund requirements of the NJHEP
project, which arises after RCE-III was made and was compared with RCE-II. The main
reasons for the additional fund requirement were :
Provision of raising the Dam Height.
Increase in the Interest During Construction (IDC) due to variation in the interest
on loan(VSL Scheme is used).
Additional safety measures against damages due to floods.
The major civil and establishment works were almost completed before RCE-III. The
task was completed economically thus resulted in the savings of Rs179.3Cr from the fund
allocated for civil and establishment works.
46 / 68
C) Reasons For Variation
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00Q
TY
INA
DE
QU
AC
Y
CH
AN
GE
IN
DE
SIG
N
UN
FO
RS
EE
NW
OR
KS
DIS
PU
TE
RE
VIE
W
ES
CA
LA
TIO
N
FO
RE
IGN
CU
RR
EN
CY
EX
G ED
C
IDC
OF
C
TA
X/D
UT
IES
REASONS FOR VARIATION
VA
RIA
TIO
N I
N %
-0.37
59.05
366.10
171.75195.84
106.65
209.05217.02
8.67
212.15
290.23
The bar chart shows the component wise variation in their respective cost, which results
in the provision for additional funds for the NJHEP project to complete after RCE-III.
The O-Y axis shows the percentage (%) cost variation of each component, where as the
bars depict the amount in which the variation occurs after RCE-III. The components
which show negative variation are either completed in less than the allotted or estimated
amount or have been over estimated in the RCE-II. The positive variation shows either
inadequacy of the funds allocation i.e underestimation of the funds requirements during
RCE-II which resulted in the need for the additional funds for the project to complete.
47 / 68
D) Fiscal Vs Other Factors
-200
-100
0
100
200
300
400
500
600
VARI
ATIO
N IN
Rs/C
r
WORKS T&P ELECTRO.MECHWORKS
OFC
PARTICULARS
FISCAL
OTHERS
ESTD NET.I.TAX IDC SALE
-107.65
338.78
21.05
-0.784
2.61
-98.91
386.14
501.25
-82.81-25
000000
The above bar chart depicts the fiscal and other reasons of each component for its
variation after RCE-III. At O-Y axis there is variation( both negative and positive) in
Rs/Cr. The fiscal reasons include escalation in cost, Fixed cost variation and statutory
duties, whereas the others include quantity variation and unforeseen/ additional works. In
each component there is unforeseen works and quantity variation i.e under estimation
during RCE-II. The Fixed cost and cost escalation (fiscal reasons) shows decline i.e over
estimation during RCE-II. The variation due to fiscal reasons in Civil Cost and electro-
mechanical works show decline after Cost Revision III. The IDC has shown escalation at
a large scale due to quantity variations.
48 / 68
Problems/ Challenges In The Implementation Of The Project/(s)
Because of Fragile Geology and steep slope, soil erosion rate is high during
snowmelt.
River blockade on account of avalanches and land slides are common because of
steep banks.
When these blockades give away, flash floods are caused and silt concentration
increases because of increased erosion, dealing with the surge shaft during floods
was a great challenge.
The floods effected for three years i.e till 2001 and bridges, new machines were
washed away.
Damages of turbines, apparatus, runners and to the other under water parts due to
excess (>4000 ppm) silt in the water.
49 / 68
Remedial Measures Hard coating on under water parts and procurement of coated spare runners with
latest coating.
Raising of Dam height.
Defining the upper limit of silt for power generation.
Construction of additional Dam and diversion tunnel in the main Satluj river to
divert excess water up to 1000 cu m.
Weekly flushing of reservoir for minimizing silt entry into power outlets.
Other Safety Measures:
♠ A separate Safety Department is functional at the Project. SJVN had
already enrolled as a corporate member of the National Safety Council
(NSC) and availed of the pertinent safety related information, manuals and
literature from the NSC for educational use and implementation.
♠ Safety related training programmes have also been organized in
consultation with NSC.
♠ Awareness about safety aspects within and outside the plant areas of the
Project are also imparted by the use of audio-visual methods, including,
banners, posters, etc
50 / 68
Benefits Of NJHEP 1500 MWDirect Benefits:
Generation of about 6924 MU of electrical energy annually.
1500 MW valuable peaking power energy starved Northern Grid.
12% free power to Himachal Pradesh and 25% balance at bus bar rate to H.P.
Total Revenue expected Rs1145 Cr annually.
Fiscal Benefits:
298.42
495.18
050
100150200250300350400450500
AMOUNTRs./Cr
2004-05 2005-06
YEARS
NET PROFIT
The net profit from NJHEP is increasing as the project is now serving the nation by
providing 1500 MW power to the Northern Grid. The net profit from the project is
becoming a good source of funds in the form of retained earnings, thereby reducing the
dependence of the firm on the outsiders.
51 / 68
Developmental Activities:
200 bedded hospital at Rampur.
Planted 1.8 lakh saplings for environmental upgradation.
Extention of educational & Hospital facilities at project area to the local people.
Construction of helipad at Rampur.
Water services (Rs.2.26Cr), health services (Rs.2Cr mobile health van) for the
local people.
Cash compensation to the landless families and compensation to build up houses.
Construction of English Medium School (DPS Rampur).
A compensation of Rs.5.45 Cr distributed to the local residents whose houses
were destroyed due to blast activities.
SJVNL has spend Rs.2.26 Cr on infrastructural development works in project
affected areas, where assistance is provided for community development
buildings, school rooms, roads, play grounds etc.
52 / 68
Limitations Of The Study
The methods of financial analysis and decisions NPV, IRR and profitability
Index, although are latest but doesn’t take into consideration the qualitative
aspects of the projects.
The cost benefit analysis doesn’t take into account IDC, which has a huge
percentage of total cost; therefore selection of the financial institutions can’t be
treated as the economical.
The future is uncertain, therefore the proposed benefits from the projects can’t be
taken as granted.
53 / 68
Recommendations
The implementation should be done as quickly as possible, otherwise the delay
will ultimately increase the overall cost of project.
The projected tariff should be revised regularly as per cost changes, rather than
fixing the cost for the next 35 years.
The safety measures should be monitored at regular interval of the time so as to
avoid further increase in the cost of the project.
54 / 68
Conclusion
The Hydro power projects play an important role in reducing the burden on thermal
resources of producing the electricity. The two projects; NJHEP and RHEP played an
important role in the social and economic upliftment of the people in their vicinity
besides generating 1500 mw and 412 mw powers.
The financial activities undertaken such as Cost Revisions, Comparative financial
analysis, Capital Budgeting ( NPV, IRR, Profitability Index), Tariff calculation and
projection for 35 years helps in determining further financial requirements, economical
selection of financial institutions for the funding purpose, Net Tariff/KWH etc
respectively. These financial activities also help in forming relationship between time and
money. The cost revision at regular interval of time just depicts the increase in cost as the
time progress. The project (NJHEP) was delayed in its completion due to floods at
regular intervals of time. The huge loss suffered and delay in execution thus resulted in
increase in cost of project almost by 9 times (Rs1678Cr to Rs9168Cr).
The short and long terms measures outlined in the paper, when fully implemented,
will greatly enhance power generation and minimize damage in all projects.These
projects have huge benefits such as infrastructural development works, resettlement
and rehabilitation activities undertaken in this project is quite rare in India and are
considered as one of the best examples of resettlement implementation in Bank
Assisted projects in India.
55 / 68
BibliographyBooks Referred:
S.No Title Author1 D.P.R (R.H.E.P) SJVNL (Corporate Planning Department)2 D.P.R (N.J.H.E.P) SJVNL (Corporate Planning Department)3 Cost Estimates (I,II,III) SJVNL (Corporate Planning Department)
Websites Referred:
S.No Title Purpose1 www.moneycafe.com London Inter Bank Offered Rate (LIBOR)2 www.worldbank.org Latest Interest Rate (RHEP)3 www.pfcindia.com PFC Rates for financial evaluation.4 www.sjvn.nic.in Financial Position Evaluation5 www.investopedia.com Cost Abstracts6 www.vernimmen.com Terminologies
56 / 68
AnnexureGlossary
Abbreviations Used
BNP: International Financial Institution, Japan From BNP
CAD: Canadian Dollar
CHF: Swiss Frank
D.Mark: Deutsche Mark
FRF: French Frank
FSL: Fixed Spread Loan
GBP: Great Britain Pound
I.T.Lira: Italian Lira
IBRD: International Bank For Reconstruction & Development
IDC: Interest During Construction.
IRR.: Internal Rate Of Return
J.Yen: Japan Yen
KFW: KFW, Germary
NJHEP: Nathpa Jhakri Hydro Electric Project.
O&M Exp: Operational & Maintenance Expenses
PFC: Power Finance Corporation
RCE: Revised Cost Estimates
REC: Rural Electrification Corporation
RHEP: Rampur Hydro Electric Project.
USD: United State Dollar
VSL: Variable Spread Loan
Definitions Agency Fee: A type of internal cost that arises from or must be paid to, an agent
acting on behalf of a principal. Agency cost arises because of the core problems
such as conflicts of interest between shareholders and management. Agency costs
are inevitable with in the organization whenever the principals are not completely
in charge, the cost can be used to provide material incentives to the agents.
57 / 68
Back Fee: The Premium charged upon the second term or portion of a compound
option. The back fee is the fee paid by the owner of a compound option to the
owner of the underlying option, when the compound option is exercised.
Bus Bar Cost: The cost per kilo watt to produce electricity, including the cost of
capital, debt service, maintenance and fuel. The Power plant bus or bus bar is that
point beyond the generator but prior to the voltage transformation point in the
plant switch yard.
Commitment fee: A charge by a lender for holding credit available for a
borrower. A fee lenders charge their borrowers for unused credit or credit that has
been promised at a specified future date. It is different from interest. A lender
charges a borrower a commitment fee to keep a line of credit open or to guarantee
a loan at a certain futire date even though the credit is not being used at that
particular time.
Currency Hedging: It is used both by financial investors to reduce the risk they
encounter when investing overseas as well as by non financial actors in the global
economy for whom multi-currency activity is a necessary evil.
Frond End Fee: The premium charged upon the initial purchase of a compound
option. In other words, the front end fee is what it costs to acquire a compound
option. If a compound option is exercised, a second payment must be made.
Guarantee Fees: Fees Charged by mortgage backed securities (MBS) providers
to lenders for bundling, servicing, selling and reporting MBS to investors. The
main component of the guarantee fee is charged to protect against credit related
losses in the mortgage portfolio. This allows the corporations selling the MBS to
make a profit, while benefiting both mortgage lenders and borrowers by making
groups of mortgages more marketable and liquid.
58 / 68
Hedge: Making an investment to reduce the risk of adverse price movements in
an asset. Normally a hedge consists of taking an offsetting position in a related
security, such as future contract.
Hedging Cost: It is the cost incurred to overcome from the risk of fluctuations in
the currency rate.
Lender’s IRR: The discounting rate that makes net present value equal to zero is
called the IRR or yield to maturity.
Line of credit: An arrangement between a financial institutional (usually a bank)
and a customer establishing a maximum loan balance that the bank will permit the
borrower to maintain.
Margin Spread: A type of option that derives its value from the difference
between the prices of two or ore assets. Spread options can be written on all types
of financial products including equities, bonds & currency.
Vertical Spread: An option trading strategy with which a trader makes a
simultaneous purchase and sale of two options of the same type that have the
same expiration dates but different prices.
Yield to maturity: It is used in investment choice. If the required rate of return is
not lower than the IRR of the investment, then investment should be realized.
59 / 68
RHEP AnnexureANNEXURE: RHEP Tariff 35
PARTICULARSYEAR(0) 1 2 3 4 5 6
A) ANNUAL CAPACITY CHARGES1. DEPRECIATION (ACTUAL) 53.89 53.89 53.89 53.89 53.89 53.89
2. DEPRECIATION (ADVANCE) 85.00 85.00 85.00 85.00 85.00 85.00
AMOUNT UNPAID DURING FIRST HALF 1388.93 1250.04 1111.14 972.25 833.36 694.47
AMOUNT UNPAID DURING SECOND HALF 1319.48 1180.59 1041.70 902.81 763.91 625.02
INTEREST ON LOAN @7.5% ON UNPAID AMOUNT DURING FIRST HALF 52.08 46.88 41.67 36.46 31.25 26.04
INTEREST ON LOAN @7.5% ON UNPAID AMOUNT DURING SECOND HALF 49.48 44.27 39.06 33.86 28.65 23.44
TOTAL INTEREST ON LOAN 101.57 91.15 80.73 70.31 59.90 49.48
INTEREST ON EQUITY 0.00 0.00 0.00 0.00 0.00 0.00
SUB TOTAL 240.46 230.04 219.62 209.20 198.79 188.37
B) ANNUAL ENERGY CHARGES
COST OF PROJECT (ANNUAL INCREMENT @4% COMPOUNDED ANNUALY 1984.14 2063.51 2146.05 2231.89 2321.16 2414.01
1. O&M CHARGES @ 1.5% OF COST OF PROJECT 29.76 30.95 32.19 33.48 34.82 36.21
2. RETURN ON EQUITY @14% OF EQUITY 83.34 83.34 83.34 83.34 83.34 83.34
3. INTEREST ON WORKING CAPITAL @ 9% 7.35 7.35 7.35 7.35 7.35 7.35
SUB TOTAL 120.45 121.64 122.88 124.17 125.51 126.90
TOTAL CHARGES 360.91 351.68 342.50 333.37 324.30 315.27
NET TARIFF PAISE/KWH 210.31 204.94 199.59 194.27 188.98 183.72
COST OF GENERATION CHARGES 277.57 268.34 259.16 250.03 240.96 231.93
COST OF GENERATION 142.34 137.61 132.90 128.22 123.56 118.94
60 / 68
7 8 9 10 11 12 13 14 15 16 17 18 19 20
53.89 53.89 53.89 53.89 53.89 53.89 53.89 53.89 53.89 53.89 53.89 53.89 53.89 53.89
85.00 85.00 85.00 85.00 -85.00 -85.00 -85.00 -85.00 -85.00 -85.00 -85.00 -85.00 -85.00 -85.00
555.58 416.68 277.79 138.90
486.13 347.24 208.35 69.45
20.83 15.63 10.42 5.21
18.23 13.02 7.81 2.60
39.06 28.65 18.23 7.81
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
177.95 167.54 157.12 146.70 -31.11 -31.11 -31.11 -31.11 -31.11 -31.11 -31.11 -31.11 -31.11 -31.11
2510.57 2610.99 2715.43 2824.05 2937.01 3054.49 3176.67 3303.74 3435.89 3573.32 3716.26 3864.91 4019.50 4180.28
37.66 39.16 40.73 42.36 44.06 45.82 47.65 49.56 51.54 53.60 55.74 57.97 60.29 62.70
83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34
7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35
128.35 129.85 131.42 133.05 134.75 136.51 138.34 140.25 142.23 144.29 146.43 148.66 150.98 153.39
306.30 297.39 288.54 279.75 103.64 105.40 107.23 109.14 111.12 113.18 115.32 117.55 119.87 122.28
178.49 173.30 168.14 163.02 60.39 61.42 62.49 63.60 64.75 65.95 67.20 68.50 69.85 71.26
222.96 214.05 205.20 196.41 20.30 22.06 23.89 25.80 27.78 29.84 31.98 34.21 36.53 38.94
114.34 109.77 105.23 100.72 10.41 11.31 12.25 13.23 14.25 15.30 16.40 17.55 18.73 19.97
61 / 68
21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
53.89 53.89 53.89 53.89 53.89 40.89 40.89 40.89 40.89 39.75 35.13 35.13 35.13 35.13 35.13
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
53.89 53.89 53.89 53.89 53.89 40.89 40.89 40.89 40.89 39.75 35.13 35.13 35.13 35.13 35.13
4347.50 4521.39 4702.25 4890.34 5085.95 5289.39 5500.97 5721.01 5949.85 6187.84 6435.35 6692.77 6960.48 7238.90 7528.45
65.21 67.82 70.53 73.36 76.29 79.34 82.51 85.82 89.25 92.82 96.53 100.39 104.41 108.58 112.93
83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34 83.34
7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35
155.90 158.51 161.22 164.05 166.98 170.03 173.20 176.51 179.94 183.51 187.22 191.08 195.10 199.27 203.62
209.79 212.40 215.11 217.94 220.87 210.92 214.09 217.40 220.83 223.26 222.35 226.21 230.23 234.40 238.75
122.25 123.77 125.35 127.00 128.71 122.91 124.76 126.68 128.68 130.10 129.57 131.82 134.16 136.60 139.13
126.45 129.06 131.77 134.60 137.53 127.58 130.75 134.06 137.49 139.92 139.01 142.87 146.89 151.06 155.41
64.85 66.18 67.57 69.02 70.53 65.42 67.05 68.74 70.51 71.75 71.29 73.27 75.33 77.47 79.69
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Annexure: RHEP LIBOR
LIBOR stands for "London Inter-Bank Offered Rate." It is based on rates that
contributor banks in London offer each other for inter-bank deposits. From a bank's
perspective, deposits are simply funds that are loaned to them. So in effect, a LIBOR is a
rate at which a fellow London bank can borrow money from other banks. Rate
calculations are complex as they incorporate variables such as time, maturity and
currency rates. There are hundreds of LIBOR rates reported each month in numerous
currencies.
Rate Adopted: 5.38%
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History Chart
6 Month LIBORMonth 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Jan5.711
%5.750
%5.036
%6.238
%5.361
%1.989
%1.353
%1.211
%2.958
2%4.812
6%5.401
4%
Feb5.680
%5.782
%5.168
%6.328
%4.955
%2.068
%1.336
%1.170
%3.149
5%4.990
7%5.372
3%
Mar5.961
%5.797
%5.083
%6.530
%4.711
%2.332
%1.262
%1.160
%3.387
6%5.119
6%5.321
2%
Apr6.079
%5.868
%5.075
%6.614
%4.231
%2.100
%1.290
%1.368
%3.415
1%5.287
9%5.358
1%
May6.008
%5.805
%5.193
%7.064
%3.990
%2.090
%1.223
%1.578
9%3.531
4%5.321
5%5.384
4%
Jun5.938
%5.871
%5.633
%7.014
%3.827
%1.948
%1.124
%1.942
0%3.691
4%5.638
2%
Jul5.829
%5.822
%5.680
%6.887
%3.694
%1.863
%1.151
%1.985
7%3.923
5%5.547
3%
Aug5.860
%5.692
%5.913
%6.831
%3.479
%1.815
%1.210
%1.990
7%4.081
7%5.450
1%
Sep5.852
%5.359
%5.974
%6.761
%2.532
%1.751
%1.180
%2.169
5%4.215
4%5.370
4%
Oct5.805
%5.131
%6.144
%6.721
%2.173
%1.618
%1.221
%2.300
7%4.446
7%5.389
8%
Nov6.039
%5.280
%6.063
%6.678
%2.101
%1.471
%1.230
%2.623
9%4.579
5%5.349
5%
Dec6.008
%5.172
%6.136
%6.208
%1.983
%1.383
%1.219
%2.775
1%4.690
1%5.365
1%Copyright 2007 MoneyCafe.com
64 / 68
NJHEP AnnexureANNEXURE: NJHEP Tariff 35 Years
PARTICULARS YEAR 0 1 2 3 4 5 6 7A) ANNUAL CAPACITY CHARGESDEPRECIATION ACTUAL 209.04 209.04 209.04 209.04 209.04 209.04 209.04DEPRECIATION ADVANCED 215.71 215.71 215.71 215.71 215.71 215.71 215.71INTEREST ON LOAN 391.80 351.44 311.08 270.71 230.36 189.97 149.59INTEREST ON EQUITY TO LOAN @ 9% 152.91 152.91 152.91 152.91 152.91 152.91 152.91TOTAL ANNUAL CHARGES 969.46 929.10 888.74 848.37 808.02 767.63 727.25
B)ENERGY CHARGESCOST OF PROJECT INCREASED @4% COMPOUNDEDANNUALLY 8495.03 8834.83 9188.23 9555.76 9937.99 10335.51 10748.93O&M EXPENSES @ 1.5% OF COP 1.04% 127.43 132.52 137.82 143.34 149.07 155.03 161.23RETURN ON EQUITY @ 14% 356.79 356.79 356.79 356.79 356.79 356.79 356.79INTEREST ON WORKING CAPITAL 33.98 33.98 33.98 33.98 33.98 33.98 33.98TOTAL ENERGY CHARGES 518.20 523.29 528.59 534.11 539.84 545.80 552.01
TOTAL CHARGES 1487.66 1452.39 1417.33 1382.48 1347.86 1313.43 1279.26NET TARIFF PAISE/KWH 2.46 2.40 2.35 2.29 2.23 2.17 2.12
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8 9 10 11 12 13 14 15 16 17 18 19 20 21
209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04215.71 215.71 215.71 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29109.23 68.86 28.49152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91686.89 646.52 606.15 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66
11178.88 11626.04 12091.08 12574.72 13077.71 13600.82 14144.85 14710.65 15299.07 15911.04 16547.48 17209.38 17897.75 18613.66167.68 174.39 181.37 188.62 196.17 204.01 212.17 220.66 229.49 238.67 248.21 258.14 268.47 279.20356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.7933.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98
558.45 565.16 572.14 579.39 586.94 594.78 602.94 611.43 620.26 629.44 638.98 648.91 659.24 669.98
1245.34 1211.68 1178.29 855.05 862.60 870.44 878.60 887.09 895.92 905.10 914.64 924.57 934.90 945.642.06 2.00 1.95 1.41 1.43 1.44 1.45 1.47 1.48 1.50 1.51 1.53 1.55 1.56
66 / 68
22 23 24 25 26 27 28 29 30 31 32 33 34 35
209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04 209.04-86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29 -86.29
152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91 152.91275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66 275.66
19358.21 20132.54 20937.84 21775.35 22646.36 23552.22 24494.31 25474.08 26493.04 27552.77 28654.88 29801.07 30993.11 32232.84290.37 301.99 314.07 326.63 339.70 353.28 367.41 382.11 397.40 413.29 429.82 447.02 464.90 483.49356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.79 356.7933.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98 33.98
681.14 692.76 704.84 717.40 730.47 744.05 758.19 772.88 788.17 804.06 820.59 837.79 855.67 874.26
956.80 968.42 980.50 993.06 1006.13 1019.71 1033.85 1048.54 1063.83 1079.72 1096.25 1113.45 1131.33 1149.921.58 1.60 1.62 1.64 1.66 1.69 1.71 1.73 1.76 1.79 1.81 1.84 1.87 1.90
67 / 68
ANNEXURE: NJHEP REVISIONComponent wise details after Cost Revisions
INITIAL COST VS REVISIONAMOUNT IN Rs/Cr
PARTICULARS INITIAL RCE-I RCE-II RCE-IIICIVIL WORKS 786.52 2242.13 3679.84 4056.77GATES & HOISTS 22.83 65.08 118.43 146.1ELECTRO.MECH WORKS 411.23 808.2 1291.98 1325.43INFRASTRUCTURE 140.84 301.51 358.09 394.11ESTD 110.59 272.33 400.95 610IDC 206.01 648.69 1734.79 1951.81OFC 82.23 79.19TOTAL 1678.02 4337.94 7666.31 8563.41
Exchange Rates Used
S.No Currency INR1 U.S.Dollar 46.222 Canadian Dollar 34.643 Deutsche Mark 28.70394 Italain Lira 0.0295 British Pound 83.966 Swiss Frank 36.727 French Frank 8.55868 Japanese Yen 0.42739 Euro 56.1410 Norwegian Komer 6.75
Annexure: NJHEP actual & estimatedActual Vs Estimated Cost and Abstraction
68 / 68
PARTICULARS ESTIMATED ACTUALDIRECT CHARGESWORKSPRELIMINARY 55.74 51.061LAND 39.49 94.32POWER, PLANT CIVILWORKSDAM 894.93 1119.044HRT-I 1001.81 863.603HRT-II 1250.49 1277.467POWER HOUSE 792.41 752.547GATES & HOISTS 138.25 150.102BUILDINGS 70 91PLANTATION 1.25 1.4MISCELLANEOUS 83.64 55.713SPECIAL T&P 15 16.09COMMUNICATION 10.9 15.331ENV & ECOLOGY 91.7 32.876LOSSES ON STOCKS 4.12 20.357MISC. CIVIL WORKS 123.652ESTABLISHMENT 400.95 597.979T&P @1% 4.08 3.296PRODUCTION 1376.52 1663.75IDC 1762.07 2263.319
