Comparative analysis of balance sheet funding and project
COMPARATIVE ANALYSIS OF BALANCE
SHEET FUNDING AND PROJECT
FINANCING AT NTPC
ABOUT THE COMPANY
NTPC Limited is the largest thermal power generating
company of India.
It's a public sector company, and was incorporated in the year
1975 to accelerate power development in the country as a
wholly owned company of the Government of India.
At present, Government of India holds 89.5% of the total
equity shares of the company and the balance 10.5% is held
by FIIs, Domestic Banks, Public and others.
The Company other business includes providing consultancy,
project management and supervision, oil and gas exploration,
power trading and coal mining.
As of march 31, 2011, the Company was executing two
projects: Tapovan Hydro Electric Project and Rammam Hydro
As of March 31, 2011, the Company had installed capacity in
India was 173626.4 mega-watts.
As of March 31, 2011, the Company had five subsidiaries:
NTPC Electric Supply Company Limited, NTPC Vidyut Vyapar
Nigam Limited, NTPC Hydro Limited, Kanti Bijlee Utpadan
Nigam Limited and Bhartiya Rail Bijlee Company Limited.
It was conferred the status of “NAVRATNA” by GOL in 1997
which was raised to “MAHARATNA” in May, 2010.
SWOT ANALYSIS OF NTPC
- Leadership position in the Indian power sector
- Strong cash flow
- Effective project implementation
- Sound customer relations and commercial performance
- High operational efficiency of coal-based stations
- Operational efficiency
- Long term agreements for coal and gas supply
- Strategic locations near fuel source
- Ability to turn around underperforming stations
- Strong balance sheet
- Emphasis on corporate governance
- Depleting raw material
- Some plants have become old & need renovation &
- Huge demand & supply gap
- Upcoming hydro & nuclear sector
- Huge opportunities in consultancy services
- Rising prices of raw material
- Rising competition from private players like Reliance Energy,
Tata Power etc.
OBJECTIVE OF THE STUDY:
To study the relative benefits of appraising the thermal project
through balance sheet financing or financing via creating a
special purpose entity & making comparative analysis on the
basis of cost & benefits.
LIMITATION OF STUDY:
- This study is done from the perspective of NTPC Ltd. only.
- Generic Approach in case of Project Assumptions.
- Data collection is purely Secondary.
- The analysis has been carried out on the basis of Project
information, Assumptions & other necessary details given by
Gross capacity of power plant is at 1000 MW(500 * 2)
COD of unit I is assumed to occur after 56 months from the date of main
plant & unit –II is 6 months onwards (62 months after the contract)
Date of project cost has to be taken at 30 Nov 2016
Rupee term loan: equity ratio is assumed to be 70:30
Plant load factor is taken at 85 %
Auxiliary consumption is assumed at 7 % of the gross energy generated.
Tariff has been taken as CERC (terms & conditions for determination of
tariff ) regulation prevalent currently(except escalation in tax & O & M
Interest in case of debt under balance sheet financing - 11%
Depreciation to be charged on the total cost assuming that total cost
(except land cost) incurred on plant to be phased out in equal proportion
on both the units.
ROE & O & M expenses calculations of Unit I & II we take in equal
Interest in case of SPV route is- 12 %
Repayment in case of balance sheet financing -8 years ( 4 yrs after starting
Interest in case of working capital financing from bank is taken at 11.75 %
Secondary fuel consumption is taken at 1 ml/Kwh
Cost of coal = Rs. 850/1000 kg(primary fuel )
Cost of secondary fuel = Rs. 40/1000 ml with an annual escalation of 0 %.
O & M expenses has been assumed at 0.125 Cr/MW with an annual
escalation of 0 %
Working capital requirements has been assumed as 1 month ;O& M
expenses ;spares =20 % of O & M expenses & coal cost & secondary fuel
cost (2 months value taken)
Company act depreciation -5.28 %; subject to the asset being depreciated till
95 % of cost price.
CERC depreciation -5.28 % p.a. SLM for first 12 years & then spread evenly
over the balanced life of the project.
The project life is assumed to be 25 years in line with the CERC guidelines
Balance Sheet Financing is the Favoured mode of Financing
for the Company due to following reasons:
- Long experience of the Company in Operation of Power plants
- Strong Balance Sheet
- Lower risk due to long term PPA which combines to allow the
company to raise loans at significantly lower rates.
All these reasons helps to reduce the WACC of the company
and it enjoys decent long term returns.