SUMMER INTERNSHIP REPORT ON

EVALUATING TECHNO-COMMERCIAL ASPECT OF CHINESE

EQUIPMENT IN INDIAN POWER SECTOR
&
FINANCIAL MODELING OF 600MW THERMAL POWER PLANT
AT

SUMITTED BY :

UNDER THE GUIDENCE OF

VINEET AWASTHI

Mr. SARABJEET SINGH

MBA (Power Management)

ESSAR POWER, MAHAN

National Power Training Institute

Faridabad

Affiliated To

AUGUST 2013

ACKNOWLEDGEMENT

I am having great pleasure to present this report entitled Financial Modeling Of 600mw
Thermal Power Plant & Evaluating Techno-Commercial Aspect Of Chinese Equipment In
Indian Power Sector I take this opportunity to express my sincere thanks to all who
contributed to make this a success.
I would like to express my sincere thanks to my guide Mr. Sarajeet Singh, Astt. V.P comercial.,
ESSAR Power Mahan for providing me the necessary resources for carrying out the study and I
would like to thank Mr. Sandeep Singh ESSAR Power Mahan for his timely and continued
support.
I feel deep sense of gratitude towards Mr.S.K. Chaudhary, Principal Director, CAMPS, Mrs.
Indu Maheshwari, Dy. Director, NPTI and Mrs. Manju Mam, Dy. Director, NPTI for arranging
my internship at ESSAR Power Mahan and being a constant source of motivation and
guidance throughout the course of my internship.

I also extend my thanks to all the faculties and my batch mates in CAMPS (NPTI), for their
support and guidance throughout the course of internship.

Thank you all for being there for me always.

Vineet Awasthi

ii

DECLARATION

I, Vineet Awasthi, Roll No 96, student of MBA-Power Management (2012-14) at National Power
Training Institute, Faridabad hereby declare that the Summer Training Report entitled Financial

Modeling Of 600mw Thermal Power Plant & Evaluating Techno-Commercial Aspect Of

Chinese Equipment In Indian Power Sector is an original work and the same has not been
submitted to any other Institute for the award of any other degree.
A Seminar presentation of the Training Report was made on August 2013 and the
suggestions as approved by the faculty were duly incorporated.

Presentation In-Charge

Signature of the Candidate

(Mr. Amit Mishra )

Countersigned
Director/Principal of the Institute

iii

iv

ABBREVIATION USED
BOT = Build Operate & Transfer
BTU = British thermal unit
CEA = Central Electricity Authority
CEC = China Electricity Council
CERC = Centre Electricity & Regulatory Commission
CPTIEC = China Power Technology Import and Export Company
DPR = Detailed Project Report
EPC = Engineering Procurement & Construction
FDI = Foreign Direct Investment
FIE = Foreign Invested Enterprise
FSU = Former Soviet Union
GDP = Gross Domestic Product
GNP = Gross National Product
IPR = Intellectual Property Rights
IPP = Independent Power producers
LOI = Letter of Intent
MoEP = Ministry of Electric power, China
MOU = Memoranda of Under Standing
NIEs = National Intelligence Estimations of China
OECD = Organization for Economic Co-operation & Development

TABLE OF CONTENT
ABOUT THE COMPANY

ix

PROJECT 1: EVALUATING TECHNO-COMMERCIAL ASPECT OF

CHINESE EQUIPMENT IN INDIAN POWER SECTOR
1.
2.
3.
4.
5.

EXECUTIVE SUMMERY
INTRODUCTION
OBJECTIVE
THE POWER SECTOR GLOBAL
THE CHINESE POWER SECTOR
5.1. OVERVIEW
5.1.1. BACKGROUND
5.1.2. THE DEMAND SUPPLY SITUATION
5.1.3. ENERGY SUPPLY OPTIONS
5.1.3.1. THERMAL POWER
5.1.3.2. HYDROELECTRIC POWER
5.1.3.3. NUCLEAR POWER
6. CHINA AND INDIA COMPARISION (MACRO LEVEL)
7. CHINA AND INDIA REALITY BEHIND STATISTICS
8. INDIAN POWER EQUIPMENT SUPPLY PROBLEMS
8.1. PROBLEMS WITH BHEL
9. REASON BEHIND CHINESE SUPPLY
10. CHINESE POWER EQUIPMENT MARKET
10.1. MAJOR PLAYERS OF CHINESE POWER EQUIPMENT MARKET
10.2. EXTENDED POWER EQUIPMENT MARKET IN CHINA
10.2.1. STRONGER POWER CONSUMPTION GROWTH
10.2.2. CLOSURE OF SMALL UNIT TO TRIGGER REPLACEMENT
IN CHINA
10.3. EXPORT MARKET ENTERING ON GLOBAL STAGE
10.3.1. CHINA POWER EQUIPMENT: ATTRACTIVE PRICE
WITH QUALITY
10.4. A LEAP IN TECHNOLOGY
10.5. TECHNOLOGY PARTERS
10.5.1. BENEFITS FROM ENHANCED EXPORT FINANCING AND
INVESTMENT
10.6. RIDE ON COAL CAPACITY RENAISSANCE
11. WHY THE CHINESE EQIPMENTS ARE CHEAPER
11.1. CHINESE GOVERNMENT POLICY TOWARDS EXPORT
11.2. WHY THE PRICES ARE SO LOW IN THE FOREIGN EXPORT MARKET
12. PROJET IN HAND WITH CHINESE PLAYERS & ISSUES WITH CHINESE
EQUIPMENT SUPPLY

8
9
10
11
13
13
13
13
13
14
14
15
16
18
21
21
22
25
25
28
29
30
30
30
31
32
32
32
34
34
35
37

vi

13. ADVANTAGES OF CHINESE SUPPLY

14. SWOT ANALYSIS OF CHINESE EQUIPMENT
14.1. STRENGTHS
14.2. WEAKNESS
14.3. OPPORTUNITIES
14.4. THREATS
15. CONCLUSION

40
41
41
41
42
42
43

vii

PROJECT 2: FINANCIAL MODELLING OF 600MW COAL BASED

THERMAL POWER PLANT
1.
2.
3.
4.

EXECUTIVE SUMMERY
ROLE OF REGULATOR IN FORMING FINANCIAL MODELLING
C.E.R.C. (TERMS & CONDITION OF TARIFF) REGULATION 2004
FINACIAL MODELLING
4.1. INTRODUCTION
4.2. NEED FOR FINANCIAL MODEL
4.3. PURPOSE OF FINANCIAL MODEL
4.4. ADVANTAGES OF FINANCIAL MODEL
4.5. APPLICATIONS

1.44
3.46
4.47
13.56
13.56
15.57
15.58
15.58
15.58

5.

FINANCIAL INDICATORS
5.1. NET PRESENT VALUE
5.2. INTERNAL RATE OF RETURN
5.3. DEBT SERVICE COVERAGE RATIO
5.4. WEIGHTED AVERAGE COST OF CAPITAL
METHOD OF TARIFF DETERMINATION
6.1. PROJECT COST AND IDC CALCULATION
6.2. ASSUMTION AND INPUT SHEET
6.3. FIXED COST CALCULATION
6.4. VARIABLE OST CALCULATION
6.5. CASH FLOW STSTEMENT
6.6. PROFIT AND LOSS ACCOUNT
6.7. BALANCE SHEET
6.8. TAX SHEET
LIMITATIONS
BIBLIOGRAPHY

16.59
16.59
17.60
18.61
19.62
21.64
21.64
22.65
22.65
23.66
23.66
23.66
24.67
25.68
27.68
28.69

6.

7.
8.

viii

ABOUT THE COMPANY

Essar is a global corporation with investments in the sectors of steel, energy (oil & gas and
power), infrastructure (ports, projects & concessions) and services (shipping, telecom, realty and
outsourcing and technology solutions). With operations in more than 25 countries across five
continents, Essar employs over 73,000 people and has revenues of $39 Billion Essar began as a
construction company in 1969 and diversified into manufacturing, services and retail.
Essar is managed by Shashi Ruia Chairman, and Ravi Ruia Vice Chairman Over the last
four decades, it has grown through strategic global acquisitions and partnerships, or through
Greenfield and Brownfield development projects, capturing new markets and discovering new
raw material sources. Today, the company has expanded its global footprint, focusing on markets
in Asia, Africa, Europe and the Americas. Essar invests significantly in the latest technology to
drive forward and backward integration in its businesses, and on leveraging synergies between
these businesses. It also focuses on in house research and innovation to be a low-cost
manufacturer with high quality products and innovative customer offerings. Alongside its
ambitious business pursuits, Essar has been committed to its social responsibility. It runs
community outreach initiatives in all its plant locations, with a focus on education, healthcare,
environmental and agricultural development, and self-employment.
Essar is committed to sustainable business practices. Our HSE (Health, Safety and Environment)
management system is at par with global standards. Essar is also taking climate change
initiatives to reduce its carbon footprint. This includes several CDM (Clean Development
Mechanism) projects that can earn the company CER (Certified Emission Reduction) credits. A
growing number of Essar's businesses are certified to international environment standards, like
ISO 9001 /14001, and health and safety standards, like OHSAS 18001
Essar is widely regarded as a responsible and conscientious global employer. It has experience in
managing businesses in different geographies with a culturally diverse workforce.

ESSAR
POWER

Oil

Project

Steel

other

ESSAR POWER
Essar Energy, a first mover among the private-sector players in the Indian power industry,
currently has a total installed generation capacity of 3,910 MW.
Essar Energy is one of India's leading private power producers with a 15-year operating track
record. The company's power business currently has seven operational power plants in India and
one operational power plant in Algoma, Canada, with a total installed generation capacity of
3,910 MW.
This capacity is increasing to 6,700 MW by the end of March 2014. Essar Energy also has access
to approximately 500 mmt of coal resources across seven coal blocks in India and overseas.

OPERATING

Essar Power - Hazira (515 MW)

Commissioned in October 1997, the Essar Power-Hazira power plant is a multi-fuel (naphtha,
high-speed diesel, natural gasoline liquid and/or natural gas) combined-cycle power plant located
near the Essar Steel facility in Hazira, Gujarat. Essar Steel and GUVNL, the Gujarat State power
utility, purchase 215 MW and 300 MW of the power, respectively. They are responsible for
providing the fuel required at the power plant to generate the power.

Vadinar Power - Jamnagar (120 MW)

The Vadinar Power power plant, located at the Vadinar refinery complex, is one of the Vadinar
refinery's captive power and steam co-generation plant. The plant is a 120 MW refinery residuebased multi-fuel, captive, co-generation plant, with capacity to generate 77 MW of power and
230 tph of steam. Essar Oil provides the fuel required at the power plant to generate the power
and steam for the power plant's operations.

Bhander Power - Hazira (500 MW)

The Bhander Power-Hazira plant, located in Hazira, Gujarat, is a natural gas-fired combinedcycle captive power plant. The plant The Bhander Power-Hazira plant, located in Hazira,
Gujarat, is a natural gas-fired combined-cycle captive power plant. The plant was commissioned
3

in 2006 and commenced full commercial operations in October 2008. Essar Steel and other Essar
Affiliated Companies are responsible for providing the natural gas required by the Bhander
Power- Hazira plant, and in turn take the power generated pursuant to their PPAs with Bhander
Power

Algoma Power Plant - Canada (85 MW)

Essar Power (Canada) (formerly Algoma Energy LLP) owns and operates the Algoma Power
Plant in Ontario, Canada. This 85 MW co-generation plant was commissioned on June 13, 2009.
The plant's facilities include two 375,000 pound/hour boilers and a 105 MW turbine. The power
plant converts waste gases from Essar Steel, Algoma, in to electricity and steam for the
steelworks. 63 MW of the power produced is sold to the Ontario Power Authority pursuant to a
20 year power purchase agreement which expires in 2029.

Vadinar P1- Gujarat (380 MW)

The Vadinar P1 power plant, located at the Vadinar refinery complex, is the Vadinar refinery's
second captive power plant. This plant is a 380 MW natural gas-fired combined- cycle plant.
This plant was the first to be commissioned since the Company's IPO in May 2010. Essar Oil
provides the fuel required at the power plant to generate the power and steam for the power
plant's operations.

Salaya I - Gujarat (1,200 MW)

The Salaya I power plant, located near Essar Oil's refinery complex at Vadinar, Jamnagar
district, Gujarat, is an imported coalfueled thermal power plant with two 600-MW generation
units. Salaya I Unit 1 (600 MW) starts commercial operations from April 2012. Coal for the
plant will be extracted from Essar Energy's captive coal mine in Indonesia.

Vadinar P2 - Gujarat (510 MW)

Vadinar P2 power plant consists of a multi-fuel (coal, naphtha, light cycle oil, clarified slurry oil
and furnace oil) co-generation power plant with 325 MW of power capacity and 900 tons per
hour (tph) of steam capacity. Steam from the facility will be provided to Essar Oil's Vadinar

refinery and power supplied to Essar Oil, Essar Steel and the merchant market. Fuel for Vadinar
P2 will be provided by Essar Oil and Essar Steel in line with their purchase requirements

.Mahan I - Madhya Pradesh (Unit I - 600 Mw)

The Mahan I power plant is a 1,200 MW (2x600 MW) captive coal-fired pit-head power plant
located in Singrauli district, Madhya Pradesh. Mahan I Unit I synchronised and began
commercial operations in December 2012. Coal for the plant will be supplied from the Mahan
captive coal block located approximately 5 km from the power plant site.

UNDER CONSTRUCTION

Mahan I - Madhya Pradesh (Unit II - 600 MW)

The Mahan I Unit II is a part of Mahan I power plant which is a 1,200 MW (2x600 MW) captive
coal-fired pit-head power plant located in Singrauli district, Madhya Pradesh. Coal for the plant
will be supplied from the Mahan captive coal block.

Hazira II - Gujarat (270 MW)

The Hazira II power plant, located at Hazira, Gujarat, will be fueled predominantly by imported
coal and corex gas and fines from the adjacent Essar Steel corex plant and comprises two
generation units of 135-MW capacity. Power from the plant will be supplied back to Essar Steel.

Paradip - Orissa (120 MW)

The Paradip power plant will be a coal-fired power plant comprising four generation units of 30
MW each located in Paradip, Orissa. Paradip is a well-equipped and serviced port, an advantage
for the supply of imported coal. Power from the plant will be supplied to Essar Steel.

Tori I - Jharkhand (1,200 MW)

The Tori I power plant will be a captive pit-head coal-fired power plant, comprising two
generation units of 600 MW capacity each, located in Latehar district, Jharkhand. Fuel for the
project will be sourced from the Chakla and Ashok Karkata captive coal blocks owned by the
company. These blocks are currently under development and proceeding through their respective
clearance processes.

Tori II - Jharkhand (600 MW)

The Tori II power plant is a 600 MW expansion of the Tori I power project. Essar Power
Jharkhand has acquired the land for the project and the single boiler, turbine, generator unit. The
Company expects to fuel the expansion project from the coal mines already allocated to it at
Chakla and Ashok Karkata.

COAL RESERVES

Mahan Coal Block

The Mahan coal block is located in Singrauli district in Madhya Pradesh. It has an estimated
reserve of 125 mt and is operated by Mahan Coal Ltd which is a 50:50 joint venture between
Essar Power and Hindalco. The off take ratio between Essar Power and Hindalco is in the ratio
of 60:40. The mine has an approved annual production of 8.5 mt. The coal extracted from this
mine will be used by the Mahan 1 power plant.

Amelia Coal Mine

In September 2011, the Company secured a second coal source for the Mahan I project when it
was allocated a share of the coal from the Amelia Coal block by the Madhya Pradesh state
6

government. Essar Power and another company were jointly allocated 20% of the coal from
Amelia which will be operated by the Madhya Pradesh State Mining Corporation. Amelia is
estimated to have around 287 million tonnes of coal reserves, according to the Ministry of Coal.
The Amelia block is in the approvals stage.

Chakla Coal Block

The Chakla Coal Block is located in Jharkhand and has an estimate reserve of 71mt. The coal
from this mine will be used in the Tori I and Tori II power plants. Essar Power has a 100%
allocation of this coal block. This mine is still in the approvals stage.

Ashok Karkata Coal Block

The Chakla Coal Block is located in Jharkhand and has an estimate reserve of 100 mt. The coal
from this mine will be used in the Tori I and Tori II power plants. Essar Power has a 100%
allocation of this coal block. This mine is still in the approvals stage.

Rampia Coal Block

The Rampia Coal Block is located in Orissa and Essar Power's share of this block has an
estimate reserve of 112 mt. The coal from this mine will be used in the Navabharat power plant.
This mine is still in the approvals stage.

Aries Coal Mine

The Aries Coal Mine is situated in Indonesia. It was acquired in April 2010 for US$ 118 Mn. It
is a JORC resource with a 2P reserves of 72 mt with a potential production of 4 million tonnes
per annum. This mine is currently under development and has received 'in principal' Panjam
Pakai forest approval. The coal extracted from this mine will be used in Salaya I power plant.

Mozambique Coal Mine

The Mozambique coal mine is located in the Tete district in Mozambique. It has an estimated
mineable reserves of 35 mt. This mine is under development. The coal extracted from this mine
will be used in the Salaya I power plant.