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Tender – Middle East Project

Emaar properties are currently the Persian Gulf region's largest land and real estate developer. After recently completing its most ambitious project till date (Burj Khalifa Downtown development), Emaar properties is embarking on yet another ambitious development project, an ultra luxury mall called “The Platinum Park”. Slated to be the world's largest-ever mall opening in retail history (even in terms of gross leasable space), The platinum park is expected to surpass several malls including the Dubai Mall, the South China Mall, which is the world's largest, Golden Resources Mall, SM City North Edsa, and SM Mall of Asia. The mall is expected to have a record 75 million visitors in the first year with almost 1.5 million visitors per week. This traffic is expected to increase by atleast 20% annually. The numbers are expected to surpass visitor arrivals to all landmark leisure destinations and theme parks in the world including Times Square (39.2 million), Central Park (38 million), and Niagara Falls (22.5 million). For this prestigious and coveted project, Emaar properties invites commercial bids for Engineering, Design, Supply, Installation, Testing & Commissioning, Trail Operation, Warranty and Handing-over of new Receiving Substation and an indoor distribution substation. Scope of Work

Specifications given by the customer are as follows:Receiving substation: - 100 MVA, 220/11 kV. Part of the supply is expected to also feed another ambitious skyscraper (along with a man-made lake) which is planned in the near future by the same developer. The skyscraper and artificial lake projects would be developed adjacent to The Platinum Park. Distribution substation: - 15 nos X 3 MVA, 11 kV/ 440 V. The load will be distributed to various wings of the mall.

YEN. etc. However the following has been decided for tenders that include CIF portion in Emaar approved currencies such as EURO. a) For the purpose of Commercial Evaluation of the Bids. Payment Terms: Forty-five (45) days from the receipt of correct invoice by Emaar properties. SWEDISH KRONER. CHF.No 1 2 3 Work Supply Construction Commissioning and Testing Approximate % of total value 70% 20% 10% Project Duration: 12 months Bid Currency: Multiple currency bids allowed Bid submission Date: 18 March 2014 Bid opening date: 18 June 2014 (5. 1.30 PM) Bid Validity: 90 days (18th March to 18th June 2014) Defects Liability Period (DLP): 6 months post completion of project Evaluation criterion: Currency of the Tender is UAE DIRHAMS (“AED”) only. Emaar Properties shall pay the fixed price of the respective currencies as submitted in the commercial bid.The cost break up for the entire scope of work including the receiving & distribution substations is as follows: S. GBP. USD. Supply Material and Plants to be incorporated in the Work : i) ii) iii) iv) Ten percent (10%) advance payable to the contractor Seventy percent (70%) on receipt at site Ten percent (10%) as progress payment after installation of the materials & plants in accordance with specification and approval by Owner/Consultant based on actual progress Ten percent (10%) payable 6 months after the competition of the project Defects Liability Period (DLP) . the exchange rate of the CIF quoted currency against the UAE DIRHAM published by the National Bank of Abu Dhabi (NBAD) on the SAME day the commercial bids are opened (18 June 2014) shall be used b) For the purpose of Letter of award and contract price.

PBG shall be valid up to the issue of the FINAL ACCEPTANCE CERTIFICATE and the cost shall be borne by CONTRACTOR. ABG value progressively reduces to NIL by the completion of the project.2. Construction i) ii) iii) Ten percent (10%) advance payable to the contractor Eighty percent (80%) payable quarterly within 1 year of the date of award Ten percent (10%) payable 6 months after the competition of the project Defects Liability Period (DLP) 3. Erection and commissioning i) ii) iii) Ten percent (10%) advance payable to the contractor Eighty percent (80%) on issue of Final Acceptance Certificate (FAC) Ten percent (10%) payable 6 months after the competition of the project Defects Liability Period (DLP) ABG & PBG: Advance payment Bank Guarantee (ABG): ABG of 10% of the value of contract to be given to client on the date of award of contract. The Performance Bank Guarantee (“PBG”) shall be in an amount equivalent to Four percent (4%) of the value of the contract in the form of an unconditional irrevocable bank guarantee. Technical/Commercial inputs Likely Bid Cost Estimate: USD 30 mio Technical report from engineers The major units for a substation plant are: 1) MVA Transformers 2) Switchgears 3) Protection panels 4) DC System 5) Control cables .

Payment terms with vendors Vendors are insisting on the following payment terms 10% advance 90% on shipment However considering the working capital requirements. Primarily. All commissioning costs are incurred in AED. Construction: This includes the civil works required in the project. The equipment were earlier being procured from European suppliers for similar tenders.Function wise the whole work can be divided as: 1. It is possible to source third party supplies from Japan and Eastern Europe. the costs are on cement (40%). Construction constitutes 20% of the total cost and would be mostly in AED. Supplies constitute about 70% of the total cost. 3. winning the bid is also important. While in house capacity utilization has become a primary mandate. appropriate strategy would have to be put in place. Cheap supplier financing was one of the main reasons behind the sourcing from Europe. Commissioning: Final commissioning constitutes around 10% of the total costs. Supply: The various equipment are bought from vendors. The company is enlisted on the approved list of vendors for the said equipment. Supply % of Supply cost 60 Own Manufactured 40 Third Party 2. steel (40%) and labour (20%). In house facilities are in place to enable production for 60% of the supplies. For such a project. The rest 40% of supply will have to be sourced from third party vendors who are on the approved list. Initial indications from sourcing team are that the third party vendors may accept either JPY or Euro depending on the country of the vendor. . Recently renowned Japanese vendors were also empanelled on the approved vendor list for the project and hence the opportunity to fully source from Japan. In house manufactured items are expected to be mainly in INR. only Indian supplies will not suffice.

However. Market Data LME Copper is currently hovering at $7400/MT. There is also an expectation that the market will turn into a surplus sooner than later due to continued slowdown in Chinese demand.e. the surplus is inevitable and the facts above cannot be ignored. Copper Outlook Copper has been in deficit for last 4 years and hence has been one of the best performing base metals in terms of prices. 1 2 Month 0 0 Copper Consumption (in MT) 3 100 4 150 5 150 6 100 Copper exposure comes mainly in the form of electrical equipment & cables where vendors have linked prices to LME Copper. Copper supply has historically been struggling with predominantly labor related issues amongst many other issues normally faced by miners. The decision to hedge can be made only at the inception / award of the project and not during the Bid-toAward phase. the curve is in “Contango” i. In other words. The forward rates are as follows: 1 Month (from Award) 7300 Copper Forward Price ($/MT) 2 7200 3 7100 4 7000 5 6900 6 6800 Forward contracts for Copper are available at discount to current prices. This means that the Copper Curve is in “Backwardation”. many miners were incentivized to invest in both Greenfield and Brownfield expansions. Global Copper demand at the end of 2012 was 19 Million MT & supply was at 18. Forward prices at a premium to current prices. The deficit in copper can be attributed to growing Chinese power grid investment & real estate boom in the last decade and lower mining supply. It is in this context that copper bulls are still betting a deficit market for one more year. This has led many in the market to believe that copper will turn into surplus by end of next year.Commodities The major commodity exposures are in the form Copper. due to high prices in last 4-5 years. the total supply is expected to exceed the demand by ~ 200. .000 MT.7 Million MT. However. The new supply over the period of next 2-3 years will come from African countries like Democratic Republic of Congo and Zambia which have high political risks and infrastructure related bottlenecks. For other metals like Aluminum. Consumption Copper requirement in the said project is to the tune of 500 MT. The timing is the question.

The global macro-economic slowdown is only further expected to make the competitors to quote at desperate prices. there are high chances that the company will get some supply / construction scope. Competitors 1. A Japanese major having unutilized captive capacity is also expected to bid for the project. To decide an appropriate strategy considering the copper forward markets. To decide an appropriate contingency to be loaded (if any) based on the Copper outlook provided above and also the fact that the project runs a risk on Copper prices till the time of the award. In case they win the bid. 3. 2. Major competition is expected from European electrical majors. 2. . A European firm having executed similar type of project with the same client before is also in the foray.Copper Price Performance over last few years The objective in copper related risk is: 1. Considering the recent sovereign debt crisis in Europe the competitors are expected to bank heavily on the possible as well as widely expected depreciation of Euro against USD which would make their bids competitive. 4.

3. Based on recent interactions with the Treasury team. 4. 5. Capacity utilization of the existing facilities would collapse significantly if no orders are booked in the current quarter. The Customer has requested all bidders to arrange for subsidized sources of finance and submit a financing package along with bid.a as Weighted Average Cost of Capital (WACC). However the current project would require a careful deliberation between competitiveness and profitability. Though major competition is expected from European & Japanese electrical majors. Along with the bid price. Final prices mentioned in the “Price” table shall be taken for calculating the bid prices. each team has to make a 10 to 15 slide presentation covering the following:a. Corporate Finance has indicated a cost of 13. 9. 7. Key assumptions made in the bid b. Given the customers payment terms. The financing will be taken by Emaar properties. the following analytical inputs have been received from the Treasury – Bid-to-award risk hedging (Annex 1) Sovereign default and European Union (“EU”) break out risk (Annex 2) Macro snapshot (Annex 3) Requirements:1. a number of Chinese and Korean companies are also in the fray bringing cheap financing to the table. Strategies used in bid pricing / structuring c. Historically the division is having a PBIT of 10%.5% p. During a recent informal discussion with the client. The business vertical wants to maintain almost zero working capital and in case a credit period is requested by the client. Your team is expected to submit the price bid in the answer sheets. 8.Objectives of the bid 1. Use of a carefully calibrated strategy to take advantage of the financial markets overview. tender conditions as well as the competition landscape and balance the risk – reward payoff. Application of financial risk management concepts (Fx & Commodities) in the bid strategy d. though structuring and facilitation is left to the bidders. 6. The business vertical has recently lost 4 similar projects in light of stiff competition. Teams shall be evaluated based on the strategy / presentation as well as the competitive price bid submitted after reckoning all the relevant factors . Getting this order can help the business vertical to get similar orders from the same client and also from major tenders coming up in Saudi Arabia and Qatar. compute the working capital that may be required to be arranged by the business vertical and suggest the trade financing products that may be employed. To get the job and execute it profitably. 2. it was mentioned that the retention clauses are “flexible”. the price would have to be accordingly adjusted keeping the competitive pressures in mind. 2.