Contents

INTRODUCTION:.......................................................................................................... 2
Global Power Sector Scenario...............................................................................3
Power scenario in India......................................................................................... 4
COMPANY PROFILE:..................................................................................................... 7
Core Competence
...........................................................................................................................
10
Project Management
...........................................................................................................................
10
Engineering & Technology
...........................................................................................................................
10
Growth Strategy
...........................................................................................................................
10
Coal Based Joint Ventures:
...........................................................................................................................
13
Market
...........................................................................................................................
16
Power Sector Performance
...........................................................................................................................
17
Power: Demand & Supply Scenario
...........................................................................................................................
19
Power Sector: Future Outlook (as per Working Group on Power)
...........................................................................................................................
24
LONG TERM FINANCE its meaning and purpose
..................................................................................................................................
26
Financial Function At NTPC
...........................................................................................................................
27
Funding Pattern Of NTPC:
...........................................................................................................................
28

Sources Of Finance
...........................................................................................................................
30
PROJECT APPRAISAL
..................................................................................................................................
39
Financial Forecasting
...........................................................................................................................
40
Techniques For Investment Decisions
...........................................................................................................................
41
Risk And SWOT Analysis:
...........................................................................................................................
47
ABOUT THE PROJECT:
..................................................................................................................................
52
ANALYSIS:
...........................................................................................................................
58
RECOMMENDATIONS:
...........................................................................................................................
59
ANNEXURES:
..................................................................................................................................
60
BIBLIOGRAPHY:
..................................................................................................................................
61

Chapter-1
Introduction

Project appraisal is the process of assessing and questioning proposals before resources are
committed. It is an essential tool for effective action in community renewal. Its a means by
which organisations can choose the best projects to help them achieve what they want for their
community.
But appraisal has been a source of confusion and difficulty for
projects in the past. Audits of the operation of Single Project Budget schemes have highlighted
concerns about the design and operation of project appraisal systems, including:

Mechanistic, inflexible systems

A lack of independence and objectivity

A lack of clear definition of the stages of appraisal and of responsibility for these stages

A lack of documentary evidence after carrying out the appraisal

Its no surprise that audits or inspections arent impressed with the quality of appraisals, and are
specifically found with problems like;

Individual appraisals which do not cover the necessary information or provide only a
superficial analysis of the project
Particular problems in dealing with risks, options and value for money

Appraisals which are considered too onerous/burdensome for smaller projects

Rushed appraisals

Project appraisal is a requirement before funding of programs is done. But tackling problems
like those outlined above is about more than getting the systems right on paper. Experience in
projects emphasizes the importance of developing an appraisal culture which involves
developing the right system for local circumstances and ensuring that everyone involved
recognizes the value of project appraisal and has the knowledge and skills necessary to play their
part in it.

What can Project Appraisal Deliver?

Project appraisal helps project initiators and designers to;

Be consistent and objective in choosing projects

Make sure their program benefits all sections of the community, including those from
ethnic groups who have been left out in the past

Provide documentation to meet financial and audit requirements and to explain decisions
to local people.

Appraisal justifies spending money on a project.

Appraisal asks fundamental questions about whether funding is required and whether a project
offers good value for money. It can give confidence that public money is being put to good use,
and help identify other funding to support a project. Getting it right may help a community make
its resources go further in meeting local need.

Appraisal is an important decision making tool.

Appraisal involves the comprehensive analysis of a wide range of data, judgments and
assumptions, all of which need adequate evidence. This helps ensure that projects selected for
funding:

Will help a partnership achieve its objectives for its area

Are deliverable
Involve local people and take proper account of the needs of people from ethnic
minorities and other minority groups
Are sustainable

Have sensible ways of managing risk.

Appraisal lays the foundations for delivery.

Appraisal helps ensure that projects will be properly managed, by ensuring appropriate financial
and monitoring systems are in place, that there are contingency plans to deal with risks and
setting milestones against which progress can be judged.

Getting the system right

The process of project development, appraisal and delivery is complex and partnerships need
systems, which suit local circumstances and organization. Good appraisal systems should ensure
that:
Project application, appraisal and approval functions are separate
All the necessary information is gathered for appraisal, often as part of project
development in which projects will need support
Race/tribal equality and other equality issues are given proper consideration

 Those involved in appraisal have appropriate information and training and make
appropriate use of technical and other expertise
There are realistic allowances for time involved in project development and appraisal
Decisions are within a implementers powers
There are appropriate arrangements for very small projects
There are appropriate arrangements for dealing with novel, contentious or particularly
risky projects.

Appraising a project
Key issues in appraising projects include the following.

Need, targeting and objectives

The starting point for appraisal: applicants should provide a detailed description of the project,
identifying the local need it aims to meet. Appraisal helps show if the project is the right
response, and highlight what the project is supposed to do and for whom.

Context and connections

Appraisal should help show that a project is consistent with the objectives of the relevant funding
program and with the aims of the local partnership. Are there links between the project and
other local programs and projects does it add something, or compete?

Consultation
Local consultation may help determine priorities and secure community consent and
ownership. More targeted consultation, with potential project users, may help ensure that
project plans are viable. A key question in appraisal will be whether there has been
appropriate consultation and how it has shaped the project

Options
Options analysis is concerned with establishing whether there are different ways of achieving
objectives. This is a particularly complex part of project appraisal, and one where guidance
varies. It is vital though to review different ways of meeting local need and key objectives.

Inputs

Its important to ensure that all the necessary people and resources are in place to
deliver the project. This may mean thinking about funding from various sources
and other inputs, such as volunteer help or premises. Appraisal should include the
examination of appropriately detailed budgets.

Outputs and outcomes

Detailed consideration must be given in appraisal to what a project does and achieves: its outputs
and more importantly its longer-term outcomes. Benefits to neighbourhoods and their residents
are reflected in the improved quality of life outcomes (jobs, better housing, safety, health and so
on), and appraisals consider if these are realistic. But projects also produce outputs, and we need
a more realistic view of output forecasts than in the past.

Value for money

This is one of the key criteria against which projects are appraised. A major concern for
government, it is also important for local partnerships and it may be necessary to take local
factors, which may affect costs, into account.

Implementation

Appraisal will need to scrutinize the practical plans for delivering the project, asking whether
staffing will be adequate, the timetable for the work is a realistic one and if the organization
delivering the project seems capable of doing so.

Risk and uncertainty

You cant avoid risk but you need to make sure you identify risk (is there a risk and if so what
is it?), estimate the scale of risk (if there is a risk, is it a big one?) and evaluate the risk (how
much does the risk matter to the project.) There should also be contingency plans in place to
minimize the risk of project failure or of a major gap between whats promised and whats
delivered.

Forward strategies
The appraisal of forward strategies can be particularly difficult, given inevitable uncertainties
about how projects will develop. But is never too soon to start thinking about whether a project
should have a fixed life span or, if it is to continue beyond a period of regeneration funding, what
support it will need to do so. This is often thought about in terms of other funding but, with an
increasing emphasis on mainstream services in neighbourhood renewal, appraisal should also
consider mainstream links and implications from the first.

Sustainability

In regeneration, sustainability has often been talked about simply in terms of whether a project
can be sustained once regeneration funding stops but sustainability has a wider meaning and,
under this heading, appraisal should include an assessment of a projects environmental, social
and economic impact, its positive and negative effects.
While appraisal will focus detailed attention on each of these areas, none of them can be
considered in isolation. Some of them must be clearly linked for example, a realistic
assessment of outputs may be essential to a calculation of value for money. No project will score
highly against all these tests and considerations. The final judgment must depend on a balanced
consideration of all these important factors.

Checklist for project appraisal

Whether you are involved in a partnership with an appraisal system in place, or starting to design
one from scratch, these questions are worth asking.
Are appraisals systematic and disciplined with a clear sequence of activities and
operating rules?

Is there an independent assessment of the project by someone who has not been involved
with the development of the project?

Does the appraisal process culminate in clear recommendations that inform approval (or
rejection) of the project?
Is the approval stage clearly separate?
Is the appraisal process well documented, with key documents signed, showing
ownership and agreement, and allowing the appraisal documentation to act as a basis for
future management, monitoring and evaluation?
Does the appraisal system comply with any relevant government guidance
Are the right people involved at various stages of the process and, if necessary, how can
you widen involvement?

Chapter-2

Industry
Profile

Industry Profile:
ELECTRICITY is one of the vital requirements in the overall development of the economy and
is therefore, appropriately called the Wheel of development. In fact, the power sector has
played a dominant role in the socio-economic development of the county. As a convenient
versatile and relatively cheap form of energy it plays a crucial role in agriculture, transport,
industry and domestic sector. Hence power has all along remained in the priority list of Indian
planners and plan outlays have reflected this aspect. The outlays for power sector have been
around 19% of the total outlays for the public sector in various plan periods.
There has been a spectacular increase in the installed generating capacity of
electricity in the country. Starting with a capacity of about 1360MW at the time of independence.

Despite tremendous increase in the availability of power since independence there

is acute power shortage gap between demand and supply. The per capita consumption of power
in the country is very low as compared to the position in the developed countries. Power is a key
input for economic growth has as direct relationship with the national productivity as also the
overall economy of the country.
There has been diversification of the sources of generation in terms of hydel,
thermal and nuclear sources. The share of hydel in the total generating capacity had drastically
come down and that of thermal had shown noticeable increase. Another significant change is the
increasing share of Central sectors in recent years.
The share of the thermal element in the installed generating capacity, which is also
predominantly coal-based, shows a steady increase.
Thus, the relatively cheaper and a more desirable change in terms of a higher share of hydel
source, which is renewable, have not materialized.

THE INDIAN ECONOMY:

According to IMF World Economic Outlook April, 2015, India ranks seventh globally in terms
of GDP at current prices and is expected to grow at 7.5 per cent in 2016.
Indias economy has witnessed a significant economic growth in
the recent past, growing by 7.3 per cent in 2015 as against 6.9 per cent in 2014. The size of the
Indian economy (real GDP 2011-12 prices) is estimated to be at ` 106.44 lakh crore for the year
2014-15 compared to ` 99.21 lakh crore in 2013-14. (Source: Ministry Of Statistics And
Programme Implementation Government of India, provisional estimates).

THE INDIAN POWER SECTOR:

Overview of the Indian Power Sector
The Indian power sector is one of the most diversified in the world. Sources for power
generation range from conventional sources like coal, lignite, natural gas, oil, hydro and nuclear
power to other viable nonconventional sources like wind, solar and agriculture and domestic
waste. Sustained growth of the power sector is critical for achieving high economic growth
targets of India. Governments focus on attaining 24x7 Power for All has accelerated capacity
addition in the country and at the same time it has resulted in increasing competition.
The power sector has evolved from a dominantly public sector
environment to a more competitive power sector with many private producers. The performance
of the power sector shows many positive features, especially relating to the pace of addition to
power generation. The capacity addition excluding Renewable Energy Sources during the first 3
years of 12th Plan is 61014 MW which has not only exceeded the capacity addition of 54964
MW of the entire 11th Plan but also constitutes 68.9% of the total 12th Plan target of 88537 MW.
The total installed power generation capacity in India was 274,817.94 MW as of June 30, 2015.
(Source: CEA Executive Summary for June 2015, Central Electricity Authority, Ministry of
Power, GoI). Electricity generation during

FY 2014-15 has crossed 1 trillion units and registers a growth of 8.4% (Source: CEA, MoP). The
total renewable capacity in the Country is as depicted in the chart below:

Source: CEA Executive Summary for June 2015, Central Electricity Authority, Ministry of
Power, GoI
Further, the quest for energy independence, economic growth, and environmental sustainability
increasingly suggests the importance of renewable energy sources. GoI has set an ambitious
target of renewable energy capacity of 1,75,000 MW by 2022 comprising of 1,00,000 MW Solar,
60,000 MW Wind, 10,000 MW Biomass and 5,000 MW Small Hydro Power (Source : MNRE).
Amidst the positive developments in the sector, the problems relating to fuel supply and also
problems relating to the financial viability of the operation of the distribution companies still
remain to be resolved.

Supply of Electricity in India:

Historical Capacity Additions
Each successive Five Year Plan of the Government has had increased targets for the addition of
power generation capacity. From 42,584.72 MW which was the installed capacity at the end of
the 6th Five Year Plan, the installed capacity as of the end of the 11th Five Year Plan was
199,877 MW. (Source: CEA Executive Summary for March 2015, Central Electricity Authority,
Ministry of Power, GoI)
Current Capacity
Out of Indias total installed capacity of 274,817.94 MW as of June 30, 2015, the installed
capacity of thermal, hydro, renewable energy and nuclear sources accounted for approximately
70%, 15%, 13% and 2%, respectively. (Source: CEA Executive Summary for June 2015, Central
Electricity Authority, Ministry of Power, GoI)

Note: Chart data is in MW; Captive generation, capacity is not included in the total (Source:
CEA Executive Summary for
June 2015, Central Electricity Authority, Ministry of Power, GoI)

Actual Power Supply Position during 2014-15

During the year 2014-15, though the total ex-bus energy availability increased by 7.4% over the
previous year and the peak met increased by 8.7%, the shortage conditions prevailed in the
Country both in terms of energy and peaking availability as given below:
Particulars
Energy(MU)
PEAK(MW)
Requirement
1,068,923
148,166
Availability
1,030,785
141,160
Surplus(+)/ Shortage (-)
-38,138
-7,006
Surplus(+)/ Shortage (-)%
-3.6
-4.7

The energy requirement registered a growth of 6.7% during the year against the projected growth
of 4.6% and Peak demand registered a growth of 9.0% against the projected growth of 8.8%.
(Source: Load Generation Balance report 2015-16)

Anticipated Power Supply Position during 2015-16:

During the year 2015-16, there would be anticipated energy shortage of 2.1% and peak shortage
of 2.6%. The annual energy requirement and availability and peak demand and peak availability
in the country are given in the Table below.
Particulars
Energy(MU)
PEAK(MW)
Requirement
1,162,423
156,862

Availability
Surplus(+)/ Shortage (-)
Surplus(+)/ Shortage (-)%

1,138,346
-24,077
-2.1

152,754
-4,108
-2.6

(Source: CEA Load Generation Balance Report (2015-16), Central Electricity Authority,
Ministry of Power, GoI)
To keep up the pace of capacity addition and generation, GoI has proposed 5 new Ultra Mega
Power Projects (UMPPs) of 20 GW attracting an investment of more than `1 lakh crore.(Source :
MoP)

Demand for Electricity in India

Per Capita Electricity Consumption in India
The per capita consumption of power in India remains relatively low compared to other major
economies. For financial year 2014-15 the per capita consumption of electricity in India was
1010 kWh (provisional). (Source: CEA Executive Summary for April 2015, Central Electricity
Authority, Ministry of Power, GoI). The per capita power consumption is low because large
swaths of population are yet to get access to electricity; population to the tune of ~28 crore is
without access to power (Source: MoP).
The energy requirement shall go up once the latent demand is unlocked. GoI
has also set a target to provide 24x7 Power for all by 2019 (Source: CEA; MoP).

POWER SCENARIO
The power sector is at cross roads today. There is a chronic power shortage in the country mainly
attributable to demand of power continuously outstripping the supply.

HYDEL POWER
In the present global energy context, there are certain aspects, which have acquired a new
significance. The development of hydropower has to be given a major thrust in the current
decade. We still have large untapped hydro power potential, but its development has slowed
down on account of lack of financial resources, interstate rivalry, inefficiency of certain state
electricity boards, variations in the course of the monsoons etc. a concerted effort is imperative to
overcome the hurdles and enlarge the share of the hydro power generation in the country. This
will help not only in tapping a renewable resource of energy, but will provide essentially needed
peaking support to thermal power generation with the pattern of demand for electricity. Since the
planners initial enthusiasm about the large hydel projects has waned somewhat, India will do
well to take recourse to the Chinese pattern of micro and mini hydel projects wherever the terrain
is suitable.

MINI HYDEL PLANTS:

There are a number of states in the Country where mini hydel projects can be set up at
comparatively lower investments to supplement other sources of energy. According to reliable
estimates the total potential of mini-hydel plants all over the country is around 5000MW. This
includes 2,000MW in hilly areas at high heads and low discharge points and 300MW at low
heads and low Discharge points. Particular drops and irrigation systems.

THERMAL POWER:
Thermal units have emerged as the largest source of power in
India. But unfortunately, the progress of power generation in this sector has not been marked by
any new breakthrough. At present stress continues to be laid on thermal power station because of
shorter construction time. Using better project management techniques is shortening the
construction period for these plants. It has been possible to improve overall efficiency of thermal
plant by using gas turbines in conjunction with conventional steam turbines.
The union government has, in order to step up central generation in the
country, established super thermal power Station in different regions. The National Thermal
power Corporation (NTPC) was established in 1975 with the object of planning, promoting and
organizing integrated development of thermal power in the country.

GEO POWER SYSTEM:

Geo Power System is a natural air-conditioning system for residential and commercial premises,
using geothermal energy available beneath the ground surface at a depth of 5 meters. It is
intelligently designed to ventilate the interiors to all corners and to effectively enhance the
internal conditions by removal of formaldehyde which is harmful to ones health.
This system provides natural environment-like conditions to oneself, increases house life and
protects the environment.

NUCLEAR ENERGY:
The planners, right from the beginning understood the importance of nuclear energy in meeting
the countrys long-term energy needs. Recognizing that nuclear technology would be subject to a
progressively restrictive technology central regime and also that the long term strategies for
exploitation of the countrys vast thorium resources are bound to be somewhat different from
those of most other countries engaged in nuclear power development, tremendous emphasis was
placed on achieving self-reliance in technology development. This policy has yielded rich
dividends and today one can proudly use the realization of indigenous capability in all aspects of
the nuclear fuel cycle.

OCEAN ENERGY:

The long standing proposal to tap non-conventional source of ocean energy for power generation
is expected to get a fillip with a joint team of the Tamil nadu electricity Board and the Ocean
Energy Cell of Indian Institute of Technology, Madras commending the offer of the U.S. based
firm sea solar power (SSP) to set up 6 Ocean Thermal Energy Conversion (OTEC) plants of 100
MW capacities each along the Tamilnadu Coast for serious consideration and recommending the
setting up of one plant to begin with at Kulasekarpatnam area.

WIND ENERGY:
Wind energy is fast emerging as the most cost-effective source of power as it combines the
abundance of a natural element with modern technology. The growing interest in wind power
technology can be attributed not only to its cost effectiveness but also to other attractive features
like modularity, short project gestation and the non-polluting nature of the technology. In India,
the exercise to harness wing energy includes wind pumps, wind battery chargers, stand-alone
wind electric generators and grid connected wind farms. The department of non-conventional
energy sources (DNES) in association with state agencies has been responsible for creating and
sustaining interest in the field.

SOLAR ENERGY:
It is believed that with just 0.1 per cent of the 75,000 trillion kHz of solar energy that reaches the
earth, planets energy requirement can be satisfied. Electricity can be generated with the help of
solar energy through the solar thermal route, as well as directly from sunlight with the help of
Solar Photovoltaic (SPV) technology. SPV Systems are being used for lighting, water pumping,
and telecommunications and also for village size power plants in rural areas. SPV systems are
being used to provide lighting under the National Literacy mission, refrigeration for vaccine
storage and transport under the National immunization program, drinking water and power for
telecommunications. Indian railways have been using this technology for signaling.

PROBLEMS:
The power sector in India is beset with a number of problems.
They relate to delays in the formulation and implementation of various projects, poor utilization
of capacity, bottlenecks in the supply of coal to thermal station, and its poor quality, faulty
distribution and transmission arrangements and bad planning leading to an injudicious hydel
thermal mix. Ecological problems are also vexing this sector.
Hurdles in environmental clearances tend to slow down completion of power
projects. Compensatory afforestation and land acquisition have proved to be major bottlenecks in
the clearance of power projects. The main problem faced in the case of environmental clearances
is the shortage of land for compensatory afforestation. While project authorities are prepared to
invest funds in afforestation land, the state governments are not able to provide the required land.
The Government has proposed to set up a task force to look into clearances for power projects
and seek up clearances.

Chapter-3
Overview of
NTPC

NTPC is Indias largest energy conglomerate with roots planted way back in 1975 to accelerate
power development in India. Since then it has established itself as the dominant power major
with presence in the entire value chain of the power generation business. From fossil fuels it has
forayed into generating electricity via hydro, nuclear and renewable energy sources. This foray
will play a major role in lowering its carbon footprint by reducing greenhouse gas emissions. To
strengthen its core business, the corporation has diversified into the fields of consultancy, power
trading, training of power professionals, rural electrification, ash utilization and coal mining as
well.

NTPC became a Maharatna company in May 2010, one of the only four
companies to be awarded this status. NTPC was ranked 400th in the 2016, Forbes Global 2000
ranking of the Worlds biggest companies.
NTPC is the largest power producer in India in terms of both installed
capacity and generation, with aggregate installed capacity of 44,398 MW (including 38,202 MW
through directly owned units and 6,196 MW through Subsidiaries and Joint Ventures) as on
March 31, 2015. As on that date its capacity excluding renewable but including capacity of
Subsidiary and Joint Ventures represented market share of 18.77% of Indias total installed
capacity and it generated 260.58 billion units of power, representing market share of 24.95% of
Indias total power generation in fiscal 2015. (Source: CEA) In the calendar year 2014, it we was
ranked as the number one independent power producer (IPP) and energy trader in the world,
on the basis of asset worth, revenues, profits and return on invested capital, according to a
survey conducted by Platts.
As on 17 September 2015 , its total installed capacity has increased to
45,548 MW of which 39,352 MW is directly through their own Company, which includes a total
of 26 power stations, comprised of 18 coal-based stations, 6 gas-based stations, 1 liquid fuelbased station and 1 hydro based station across India. In addition, it also has 8 renewable energy
projects. While its core business is the generation and sale of electricity in India, it is a
diversified and integrated player in the power sector, as it is also engaged in various other
complementary businesses, seeking to support its core business and to leverage its technical and
operational skills as well as its client and knowledge base in India and abroad. NTPCs
complementary activities, conducted in some cases through its Subsidiaries and Joint Ventures,
include project consultancy (including services such as engineering, operation and maintenance
management, project management, contracts and procurement management, quality
management, training and development), power trading, electricity distribution and manufacture
of equipment used in the power business. It also have been allotted 8 (eight) coal blocks for
captive use in power plants which are under different phases of development.
Our Company is a Government company, which was conferred Navaratna status by the
Government of India in 1997 and upgraded to Maharatna status in 2010. Its Companys shares
are listed on BSE and NSE since November 2004.

Growth of NTPC installed capacity and Generation:

The total installed capacity of the company is 47,178 MW (including JVs) with 18 coal based, 7
gas based stations and 1 Hydro based station. 9 Joint Venture stations are coal based and 9
renewable energy projects. The capacity will have a diversified fuel mix and by 2032, non-fossil
fuel based generation capacity shall make up nearly 28% of NTPCs portfolio.
NTPC has been operating its plants at high efficiency levels. Although the company has 17.73%
of the total national capacity, it contributes 24% of total power generation due to its focus on
high efficiency.
In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh
issue and 5.25% as offer for sale by the Government of India. NTPC thus became a listed
company in November 2004 with the Government holding 89.5% of the equity share capital. In
February 2010, the Shareholding of Government of India was reduced from 89.5% to 84.5%
through a further public offer. Government of India has further divested 9.5% shares through
OFS route in February 2013. With this, GOI's holding in NTPC has reduced from 84.5% to 75%.
The rest is held by Institutional Investors, banks and Public.
NTPC is not only the foremost power generator; it is also among the great places to work. The
company is guided by the People before Plant Load Factor mantra which is the template for all
its human resource related policies. NTPC has been ranked as 6th Best Company to work for in
India among the Public Sector Undertakings and Large Enterprises for the year 2014, by the
Great Places to Work Institute, India Chapter in collaboration with The Economic Times.

Diversified Growth:
By the year 2032, 28% of NTPCs installed generating capacity will be based on carbon free
energy sources. Further, the coal based capacity will increasingly be based on high-efficient-lowemission technologies such as Super-critical and Ultra-Super-critical. Along with this growth,
NTPC will utilize a strategic -mix of options to ensure fuel security for its fleet of power stations.

Opening its doors to opportunities that were coming its way and due to transformations in the
business environment, NTPC made changes in its strategy and diversified the business
adjacencies along the energy value chain. In its pursuit of diversification NTPC has developed
strategic alliances and joint ventures with leading national and international companies.
Hydro Power Tapping into the vast hydropower resource in the country and the desire to look
beyond fossil fuels stimulated NTPC to enter into the hydro power business with the 800 MW
Koldam hydro project in Himachal Pradesh. Two more projects have also been taken up in
Uttarakhand.

Renewable Power

- In order to broad base its fuel mix NTPC has plan of capacity addition

of about 1,000 MW through renewable resources, such as solar and wind energy by 2017.

Nuclear Power - It is the fourth-largest source of energy in the country after thermal, hydro
electric and renewable sources. A Joint Venture Company "Anushakti Vidhyut Nigam Ltd." has
been formed (with 51% stake of NPCIL and 49% stake of NTPC) for the development of nuclear
power projects in the country.

Coal Mining

- In a major backward integration move to create fuel security, NTPC has

ventured into coal mining business with an aim to meet about 20% of its coal requirement from
its captive mines by 2017. The Government of India has so far allotted 10 coal blocks to NTPC.

Power Trading -'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was
created for trading power, leading to optimal utilization of NTPCs assets. It is the second largest
power trading company in the country. In order to facilitate power trading in the country,
National Power Exchange Ltd., a joint venture of NTPC, NHPC, PFC and TCS has been
formed for operating a Power Exchange.

Fly Ash Utilization - NTPC has converted the generation of fly ash into a business
opportunity. The ash is used as a raw material by cement companies and brick manufacturers.
Therefore, NVVN is engaged in the business of fly ash export and sale to domestic customers.
Joint ventures with cement companies are being planned to set up cement grinding units in the
vicinity of NTPC stations.
Power Distribution - NTPC Electric Supply Company Ltd. (NESCL), a wholly owned
subsidiary of NTPC, was set up for distribution and supply of power. NESCL is engaged in the
Grameen Vidyutikaran Yojana programme for rural electrification..

SWOT ANALYSIS of NTPC LIMITED

STRENGTHS OF NTPC LIMITED

The Company has kept itself sufficient liquid fund to meet any kind of cash requirement.
Efficient working capital of the plant.
Efficient and timely completion of projects.
A minimum risk factor.
Best integrated project management system.
Company with excellent records and high profit.
An early starter, more than 40 years experience in power sector.
One amongst the nine jewels of India called Navratnas.
Highly motivated and dedicated workers and officers.
Excellent growth prospect with significant additions, modifications and replacements.
Employee friendly personnel policies.
Low project cost of NTPC LTDs plant.
One of the listed companies on BSE & NSE.

WEAKNESSESS of NTPC LIMITED

Depleting raw materials.

Some of the pants of NTPC LTD has become old and need investment for replacement
or modifications.

OPPORTUNITIES for NTPC LIMITED

Demand and supply gap.

Upcoming hydro & nuclear sector.
Use opportunities in the consultancy services both abroad as well as in India.

Growth in power sector.

CHALLENGES in NTPC LIMITED

Varying price of raw materials makes working costly.

Huge competitions from SEBs, Reliance Energy & TATA Power and other private
players in power industries.

Coming up of other sources of power generation and consumption.

Huge capital requirement for expansion, diversification, horizontal and vertical

integration.

Vision of NTPC
To be the worlds largest and best power producer, powering Indias growth.

Mission of NTPC
Develop and provide reliable power, related products and services at competitive prices,
integrating multiple energy sources with innovative and eco-friendly technologies and contribute
to society.

Core Values BE COMMITTED

B Business Ethics
E Environmentally & Economically Sustainable
C Customer Focus
O Organizational & Professional Pride
M Mutual Respect & Trust
M Motivating self & others
I Innovation & Speed
T Total Quality for Excellence
T Transparent & Respected Organization
E Enterprising
D Devoted

LONG TERM FINANCE its meaning and purpose

A business requires funds to purchase fixed assets like land and building, plant and machinery,
furniture etc. These assets may be regarded as the foundation of a business. The capital required
for these assets is called fixed capital. A part of the working capital is also of a permanent nature.
Funds required for this part of the working capital and for fixed capital are called long term
finance.

Purpose of long term finance:

Long term finance is required for the following purposes:
1. To Finance fixed assets:
Business requires fixed assets like machines, Building, furniture etc. Finance required to buy
these assets is for a long period, because such assets can be used for a long period and are not for
re-sale.
2. To finance the permanent part of working capital:
Business is a continuing activity. It must have a certain amount of working capital which would
be needed again and again. This part of working capital is of a fixed or permanent nature. This
requirement is also met from long term funds.
3. To finance growth and expansion of business:
Expansion of business requires investment of a huge amount of capital permanently or for a long
period.

Factors determining long-term financial requirements:

The amount required to meet the long term capital needs of a company depend upon many
factors. These are:
(a) Nature of Business:
The nature and character of a business determines the amount of fixed capital. A manufacturing
company requires land, building, machines etc. So it has to invest a large amount of capital for a
long period. But a trading concern dealing in, say, washing machines will require a smaller
amount of long term fund because it does not have to buy building or machines.
(b) Nature of goods produced:
If a business is engaged in manufacturing small and simple articles it will require a smaller
amount of fixed capital as compared to one manufacturing heavy machines or heavy consumer
items like cars, refrigerators etc. which will require more fixed capital.
(c) Technology used:

In heavy industries like steel the fixed capital investment is larger than in the case of a business
producing plastic jars using simple technology or producing goods using labor intensive
technique.
Characteristics of a Power Project (in India):

1. Long Gestation Period

2. Regulated Tariff Mechanism with almost Cost-plus structure In India
3. Weak customer Financials In India
4. Huge Investment requirement

Financing Requirement of a Power Project:

Long Term Loans

Government - Equity, Loans, Budgetary support

Direct ECBs - Multilateral agencies, syndicated loans, export credit, Bilateral agencies,

World Bank- major source

Domestic borrowings

Bonds through Public and Private placement issues

Loans from Banks and FIs (LIC, UTI, ICICI .)

Deposits for working capital needs

Internal resources

Financial Function at NTPC

NTPC, being a Major Power Generating giant company required hefty of amount to sponsor its
New and On-going projects, but NTPC cant meet the funds through Retained Earnings/Internal
resources only. It requires funds for New Projects, Renovation & Modernization, Environment
Action Plan (EAP), Additional Capital Expenditure, Survey & Investigation, R&D. The
magnitude of funds can be anticipated by evaluating the available funds and by engineering the
Project Cost.

Internal Resources in NTPC

For large capacity addition programme.
Internal resources are required to the extent of 30% of the project Cost
No budgetary support from the Govt. of India
Capacity of internal resources generation is affected by
Tariff fixation
Depreciation
Return on capital

Performance of operating stations - Better / worse than the norms

set by CERC.

Level of debtors realisation-10% drop in realization would affect

1000-1400 Crs
Dividend payouts

Funding Pattern of NTPC:

NTPC is regulated by CERC to follow the Debt Equity Ratio of 70:30. Hence, NTPC is applying
the same Ratio in all its On-going & New Projects. But, Loan portion again sub-divided into
Domestic Commercial Borrowings (DCB) & External Commercial Borrowings (ECB) by NTPC
Management. At present, Funding Pattern of NTPC is as follows:

Equity

30%

DCB

30%

ECB

40%

SOURCES OF FINANACE

Debt (70%)

DCB
(30%)

Term Loans
From Banks/
& FIs

Equity (30%)

ECB
(40%)

Issue of Bonds
Debentures
Commercial Paper

Suppliers Credit

Export Credit
Buyers Credit

Euro Bonds
Syndicate Loans
Term Loans
World Bank/JBIC

EXIM
Escalation Credit

The selection of the SOURCE depends upon the following factors: 1. Debt: Equity Ratio
2. Cost of Funds
3. Moratorium Period
4. Repayment Terms
5. Other Financial Charges like Commitment Charges, Upfront Fee, Prepayment Charges
etc.
6. Other Terms & Conditions
7. Fixed/Floating Rate
8. Prepayment Clause
9. Charge on the Assets (now NTPC is following the Negative Lien clause)
10. Availability of the source

Sources of Finance
A. Shares
Issue of shares is the main source of long term finance. Shares are issued by joint stock companies to the public. A company divides its capital into units of a definite face value, say of
Rs.10 each or Rs.100 each. Each unit is called a share. A person holding shares is called a
shareholder.
Characteristics of shares:
The main characteristics of shares are following:
1.
2.
3.
4.

It is a unit of capital of the company.

Each share is of a definite face value.
A share certificate is issued to a shareholder indicating the number of shares and the amount.
Each share has a distinct number.
5. The face value of a share indicates the interest of a person in the company and the extent
of his liability.
6. Shares are transferable units.

Investors are of different habits and temperaments. Some want to take lesser risk and are
interested in a regular income. There are others who may take greater risk in anticipation of huge
profits in future. In order to tap the savings of different types of people, a company may issue
different types of shares. These are:
1. Preference shares, and
2. Equity Shares.

Preference Shares:
Preference Shares are the shares which carry preferential rights over the equity shares. These
rights are (a) receiving dividends at a fixed rate, (b) getting back the capital in case the company
is wound-up. Investments in these shares are safe, and a preference shareholder also gets
dividend regularly.

Equity Shares:
Equity shares are shares which do not enjoy any preferential right in the matter of payment of
dividend or repayment of capital. The equity shareholder gets dividend only after the payment of
dividends to the preference shares. There is no fixed rate of dividend for equity shareholders. The
rate of dividend depends upon the surplus profits. In case of winding up of a company, the equity
share capital is refunded only after refunding the preference share capital. Equity shareholders
have the right to take part in the management of the company. However, equity shares also carry
more risk.
Following are the merits and demerits of equity shares:
Merits
To the shareholders:
1. In case there are good profits, the company pays dividend to the equity shareholders at a
higher rate.
2. The value of equity shares goes up in the stock market with the increase in profits of the
concern.
3. Equity shares can be easily sold in the stock market.
4. Equity shareholders have greater say in the management of a company as they are
conferred voting rights by the Articles of Association.
To the Management:
1. A company can raise fixed capital by issuing equity shares without creating any charge
on its fixed assets.
2. The capital raised by issuing equity shares is not required to be paid back during the life
time of the company. It will be paid back only if the company is wound up.
3. There is no liability on the company regarding payment of dividend on equity shares. The
company may declare dividend only if there is enough profit.
4. If a company raises more capital by issuing equity shares, it leads to greater confidence
among the investors and creditors.

De-merits:
To the shareholders
1. Uncertainly about payment of dividend:
Equity share-holders get dividend only when the company is earning sufficient profits and the
Board of Directors declare dividend.
If there are preference shareholders, equity shareholders get dividend only after payment of
dividend to the preference shareholders.
2. Speculative:
Often there is speculation on the prices of equity shares. This is particularly so in times of boom
when dividend paid by the companies is high.
3. Danger of overcapitalization:
In case the management miscalculates the long term financial requirements, it may raise more
funds than required by issuing shares. This may amount to over-capitalization which in turn leads
to low value of shares in the stock market.
4. Ownership in name only:
Holding of equity shares in a company makes the holder one of the owners of the company. Such
shareholders enjoy voting rights. They manage and control the company. But then it is all in
theory. In practice, a handful of persons control the votes and manage the company. Moreover,
the decision to declare dividend rests with the Board of Directors.
5. Higher Risk:
Equity shareholders bear a very high degree of risk. In case of losses they do not get dividend. In
case of winding up of a company, they are the very last to get refund of the money invested.
Equity shares actually swim and sink with the company.
To the Management
1. No trading on equity:
Trading on equity means the ability of a company to raise funds through preference shares,
debentures and bank loans etc. On such funds the company has to pay at a fixed rate. This
enables equity shareholders to enjoy a higher rate of return when profits are large. The major part
of the profit earned is paid to the equity shareholders because borrowed funds carry only a fixed
rate of interest. But if a company has only equity shares and does not have either preference
shares, debentures or loans, it cannot have the advantage of trading on equity.
2. Conflict of interests:
As the equity shareholders carry voting rights, groups are formed to corner the votes and grab the
control of the company. There develops conflict of interests which is harmful for the smooth
functioning of a company.

B. Debentures
Whenever a company wants to borrow a large amount of fund for a long but fixed period, it can
borrow from the general public by issuing loan certificates called Debentures. The total amount
to be borrowed is divided into units of fixed amount say of Rs.100 each. These units are called
Debentures. These are offered to the public to subscribe in the same manner as is done in the
case of shares. A debenture is issued under the common seal of the company. It is a written
acknowledgement of money borrowed. It specifies the terms and conditions, such as rate of
interest, time repayment, and security offered, etc.
Characteristics of Debenture
Following are the characteristics of Debentures:
i) Debenture holders are the creditors of the company. They are entitled to periodic payment
of interest at a fixed rate.
ii) Debentures are repayable after a fixed period of time, say five years or seven years as per
agreed terms.
iii) Debenture holders do not carry voting rights.
iv) Ordinarily debentures are secured. In case the company fails to pay interest on debentures
or repay the principal amount, the debenture holders can recover it from the sale of the
assets of the company.
Types of Debentures:
Debentures may be classified as:
a) Redeemable Debentures and Irredeemable Debentures
b) Convertible Debentures and Non-convertible Debentures.
Redeemable Debentures:
These are debentures repayable on a pre-determined date or at any time prior to their maturity,
provided the company so desires and gives a notice to that effect.
Irredeemable Debentures:
These are also called perpetual debentures. A company is not bound to repay the amount during
its life time. If the issuing company fails to pay the interest, it has to redeem such debentures.
Convertible Debentures:
The holders of these debentures are given the option to convert their debentures into equity
shares at a time and in a ratio as decided by the company.
Non-convertible Debentures:
These debentures cannot be converted into shares.

Merits of debentures:
Following are some of the advantages of debentures:
1) Raising funds without allowing control over the company:
Debenture holders have no right either to vote or take part in the management of the company.
2) Reliable source of long term finance:
Since debentures are ordinarily issued for a fixed period, the company can make the best use of
the money. It helps long term planning.
3) Tax Benefits:
Interest paid on debentures is treated as an expense and is charged to the profits of the company.
The company thus saves income-tax.
4) Investors Safety:
Debentures are mostly secured. On winding up of the company, they are repayable before any
payment is made to the shareholders. Interest on debentures is payable irrespective of profit or
loss.
Demerits:
Following are the demerits of debentures:
1) As the interest on debentures has to be paid every year whether there are profits or not, it
becomes burdensome in case the company incurs losses.
2) Usually the debentures are secured. The company creates a charge on its assets in favor
of debenture holders. So a company which does not own enough fixed assets cannot
borrow money by issuing debentures. Moreover, the assets of the company once
mortgaged cannot be used for further borrowing.
3) Debenture-finance enables a company to trade on equity. But too much of such finance
leaves little for shareholders, as most of the profits may be required to pay interest on
debentures. This brings frustration in the minds of shareholders and the value of shares
may fall in the securities markets.
4) Burdensome in times of depression. During depression the profits of the company
decline. It may be difficult to pay interest on debentures. As interest goes on
accumulating, it may lead to the closure of the company.

C. Public Deposits
It is a very old source of finance in India. When modern banks were not there, people used to
deposit their savings with business concerns of good repute. Even today it is a very popular and
convenient method of raising medium term finance. The period for which business undertakings
accept public deposits ranges between six months to three years.
Procedure to raise funds through public deposits:

An undertaking which wants to raise funds through public deposits advertises in the newspapers.
The advertisement highlights the achievements and future prospects of the undertaking and
invites the investors to deposit their savings with it. It declares the rate of interest which may
vary depending upon the period for which money is deposited. It also declares the time and mode
of payment of interest and the repayment of deposits. A depositor may get his money back before
the date of repayment of deposits for which he will have to give notice in advance.
Features:
1. These deposits are not secured.
2. They are available for a period ranging between 6 months and 3 years.
3. They carry fixed rate of interest.
4. They do not require complicated legal formalities as are required in the case of shares or
debentures.
Keeping in view the malpractices of certain companies, such as not paying interest for years
together and not refunding the money, the Government has framed certain rules and regulations
regarding inviting public to deposit their savings and accepting them.
Rules governing Public Deposits
Following are the main rules governing public deposits:
1. Deposits should not be made for less than six months or more than three years.
2. Public is invited to deposit their savings through an advertisement in the press. This
advertisement should contain all relevant information about the company.
3. Maximum rate of interest is fixed by the Reserve Bank of India.
4. Maximum rate of brokerage is also fixed by the Reserve Bank of India.
5. The amount of deposit should not exceed 25% of the paid up capital and general reserves.
6. The company is required to maintain Register of Depositors containing all particulars as
to public deposits.
7. In case the interest payable to any depositor exceeds Rs. 10,000 p.a., the company is
required to deduct income-tax at source.
Advantages:
Following are the advantages of public deposits:
1. Simple and easy:
The method of borrowing money through public deposit is very simple. It does not require many
legal formalities. It has to be advertised in the newspapers and a receipt is to be issued.
2. No charge on assets:
Public deposits are not secured. They do not have any charge on the fixed assets of the company.

3. Economical:
Expenses incurred on borrowing through public deposits are much less than expenses of other
sources like shares and debentures.

4. Flexibility:
Public deposits bring flexibility in the structure of the capital of the company. These can be
raised when needed and refunded when not required.
Disadvantages:
Following are the disadvantages of public deposits:
1. Uncertainty:
A concern should be of high repute and have a high credit rating to attract public to deposit their
savings. There may be sudden withdrawals of deposits which may create financial problems.
2. Insecurity:
Public deposits do not have any charge on the assets of the concern. It may not always be safe to
deposit savings with companies particularly those which are not very sound.
3. Lack of attraction for professional investors:
As the rate of return is low and there is no capital appreciation, the professional investors do not
appreciate this mode of investment.
4. Uneconomical:
The rate of interest paid on public deposits may be low but then there are other expenses like
commission and brokerage which make it uneconomical.
5. Hindrance to growth of capital-market:
If more and more money is deposited with the companies in this form there will be less
investment in securities. Hence the capital market will not grow. This will deprive both the
companies and the investors of the benefits of good securities.
6. Overcapitalization:
As it is an easy, convenient and cheaper source of raising money, companies may raise more
money than is required. In that case it may not be able to make the best use of the funds or may
indulge in speculative activities.

D. Bonds
A bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to
repay the principal and interest (the coupon) at a later date, termed maturity. A bond is simply a
loan in the form of a security with different terminology; the issuer is equivalent to the borrower,
the bond holder to the lender, and the coupon to the interest.
Bonds usually have a defined term, or maturity, after which the bond is redeemed. Bonds enable
the issuer to finance generally medium-term investments ranging from 7 to 10 years. The bond
holders are represented by a trustee that acts as the agent and representative of the bondholders.
Bond purchasers are generally the most conservative source of financing for a project. The most
common process of issuing bonds is through underwriting. In underwriting, one or more
securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and
resell them to investors.

In the context of New SPVs project, bonds may not be an appropriate option in view of the
expected tenor. The project requires debt financing with a tenor of 14 to 15 years while bonds of
this maturity period is rarely issued. However, one type of bond which can be possibly
considered is the convertible debenture. . These are securities initially issued as debt securities
but which are subsequently convertible into equity shares. Convertible debentures were popular
in India in the eighties but have become a rarity now though legally permissible. Convertible
debentures can be considered for issue by New SPVs to strategic investors in the event it is not
possible to issue shares immediately to them. The contributions can come from them in the form
of debt initially and subsequently converted to equity once all formalities are completed.

E. Borrowing from Commercial Banks

Traditionally, commercial banks in India do not grant long term loans. They grant loans only for
short period not extending one year. But recently they have started giving loans for a long period.
Commercial banks give term loans i.e. for more than one year. The period of repayment of short
term loan is extended at intervals and in some cases loan is given directly for a long period.
Commercial banks provide long term finance to small scale units in the priority sector.
Merits of long term borrowings from Commercial Banks:
The merits of long-term borrowing from banks are as follows:
1.
2.
3.
4.
5.

It is a flexible source of finance as loans can be repaid when the need is met.
Finance is available for a definite period; hence it is not a permanent burden.
Banks keep the financial operations of their clients secret.
Less time and cost is involved as compared to issue of shares, debentures etc.
Banks do not interfere in the internal affairs of the borrowing concern, hence the
management retains the control of the company.
6. Loans can be paid-back in easy installments.
7. In case of small-scale industries and industries in villages and backward areas, the
interest charged is low.
Demerits:
Following are the demerits of borrowing from commercial banks:
1. Banks require personal guarantee or pledge of assets and business cannot raise further
loans on these assets.
2. In case the short term loans are extended again and again, there is always uncertainty
about this continuity.
3. Too many formalities are to be fulfilled for getting term loans from banks. These
formalities make the borrowings from banks time consuming and inconvenient.

E. Rupee Term Loan

Rupee term loan can be taken to provide finance to all types of projects in state and private
sector. The extent of assistance as rupee term loan is different for different kinds of entities and it
might depend upon project to project. Entities under centre/state sector can get a loan upto 70%
of the project cost whereas entities under reforming state sector can get a loan upto 80% of the
project cost and private entities can get a loan up to 50% of the project cost. These loans are
usually available for long term tenors of around 14 to 15 years broken into construction period,
moratorium period (involving no loan repayments) and a repayment period.

The costs for such loans are usually linked to the prime lending rates of banks and the rate of
interest would therefore be floating in nature. In other words it would be periodically reset as and
when the banks revise their prime lending rates. The interest rate reset is usually on annual basis
during the repayment period since during this period the project is on stream and the risks are
substantially reduced. To cover the project risks, adequate security is insisted upon by Banks
usually in the form of first charge on assets, charge on Trust and Retention Accounts, creation of
Debt Service Coverage Reserve Accounts etc. Under Trust and Retention Accounts, the cash
flows from the project are escrowed in a separate account payments from which are prioritized as
taxes and duties, operating costs, debt service with investments in fixed assets coming up only
later and last of all would be any dividend distribution.
For New SPVs project, Rupee Term Loans seem to be the most appropriate given the significant
amount of expected expenditure in Indian Rupees (approx. 70%) and the long tenor of the loans.
However, with the recent interest rates, the cost of borrowings is likely to increase substantially.

F. External commercial borrowings (ECB)

ECB refer to commercial loans availed from non-resident lenders with minimum average
maturity of 3 years. This can be accessed under two routes, which are by automatic route and
approval route. ECBs are permissible for corporate up to USD 500 million p.a. without any
maturity period limitation under the automatic route out of which USD 500 million can be
repatriated to India for financing rupee expenditure. Automatic route, applicants may also take
recourse to the Approval route. ECBs of an additional amount of US $ 250 million with average
maturity of more than 10 years can be obtained under the Approval route.
ECBs are, however, generally available in the international capital markets only for shorter
maturities of say up to 10 years. Accordingly they may not be that relevant for funding of New
SPVs project which ideally requires financing with a tenor of around 15 years.

G. Export Credit Assistance (ECA)

ECAs are in the nature of project tied loans availed from non-resident EXIM banks and export
credit guaranteeing agencies. The ECB limits shall be applicable for ECAs as well. However, the
tenor in these cases is much higher and could extend up to 15 years and as such would be more
appropriate in the New SPVs context.

PROJECT APPRAISAL

A Project may have many definitions but for our purpose a project means a specific plan or an
investment opportunity to establish a manufacturing unit to produce new goods/services or
expand the production of existing goods/services, in a certain period of time. Here the project is
the setting up of a new plant and generating electricity.
The steps involved in project appraisal are:

Identifying the Project

The first step of project appraisal or project management is identifying a prospective project that
is coming up, this can be done by researching about the prospects of key sectors and narrowing
our search to various agencies like government organizations, international institutions like
WHO, World Bank, UNDP, Non-Governmental Organizations etc., as they can be better source
of projects.

Project Analysis
The second step of project appraisal is project analysis. Once a project is identified, analysis of
the same is required in respect of the cost that will be incurred in the project, the problems that
the project may inherit, the solutions to the problems, and the benefit that the project will bring
to the company or the organization.

Formulation of problem and its statement

The third step of project appraisal is Problem formulation and statement of the problem. The
need for a new project arises when the existing company faces a problem. So from the existing
company point of view, problem formulation has to be carried out and a statement of the problem
has to be laid down. The problem that has to be addressed has to be described and analyzed.

Project Planning
Implementation of any successful project lies in its planning. Based of the goals and objective of
the company a project plan is made. The project plan is the blue print of the project. Effective
planning gives proper direction in the implementation of the project and it further helps in
adequate monitoring and evaluation. For the implementation of plan, an activity chart is
prepared. The activity chart consists of all the proposed activities in the implementation process,
it includes the start date, calendar for the entire project, dates of monitoring and evaluation
periods, finishing stages, series of outputs, slack time, responsible person to be coordinate the
activities etc.

Financial Forecasting

Before we move on to the project appraisal techniques, one thing we always need to keep in
mind that any technique we use for project appraisal, all them require financial forecasting.
Therefore the importance of financial forecasting cannot be undermined.
Forecasting is the process by which companies prepare for the future. It involves predicting the
future outcome of various business decisions. This includes the future of the business or a unit as
a whole, the future of an existing or proposed production unit, and the future of the industry in
which the business operates, to name a few. Forecasting is used to answer important questions,
such as:

How much profit will the business make?

How much demand will there be for a product or service?
How much will it cost to produce the product or offer the service?
How much money will the company need to borrow?
When and how will borrowed funds be repaid?

Businesses must understand and use forecasting in order to answer the above listed important
questions. This helps the company prepare for the future. It also helps the organization make
plans that will lead to becoming a financially successful business.
Financial forecasting is important for several reasons. First, it enables management to change
operations at the right time in order to reap the greatest benefit. It also helps the company prevent
losses by making the proper decisions based on relevant information. Forecasting is also
important when it comes to establishing a new production unit. It helps management decide
whether the unit will be successful. Forecasting prevents the company from spending time and
money developing a production facility that will fail.
Stockholder expectations highlight another reason behind the importance of forecasting. Public
companies experience scrutiny and pressure for short-term performance from investors.
Operational results will be examined by investors and investment analysts, and actual results that
differ from forecasts will be bad for the company and its stock price. This is because both
meeting predictions and exceeding predictions will reduce investor confidence. This will cause
investors to believe that the company does not understand its own business model.
The elements of doing business are constantly changing. Interest rates rise and fall, customer
preferences change, suppliers go out of business, and the list goes on and on. As the factors that
affect business change, the company forecasts must also change. In this time of rapid change,
accurate and timely forecasts have become even more important. Recognizing this is the first
step in becoming a successful organization.
Advantages of Financial Forecasting are:

It will help you to obtain funding if you need it.

It will set out clearly the money that you need to put together to start the business and
then to run it for a period.
It will help prevent you from going into a business that will not be successful.

It will highlight periods where your business may need extra financial help.

It will help you to spot problems early so you can make plans for the necessary solution.
(For example, it will highlight whether you are holding too much stock or whether your
collection is less than it should be or that you will be short of cash at a particular time).
It will inspire confidence in lenders and banks that you may have to approach for finance.

Disadvantages of Financial Forecasting are:

It takes a lot of time.

It is a costly process because we need the assistance of accountant or financial adviser.
A financial plan merely forecasts and the accuracy depends on the information on which
it is based.
It can tend to discourage if the actual results are far off the projected results in the
financial projections.

Techniques for Investment Decisions

Typically we use four quantitative techniques for assessing investment decisions:

Accounting rate of return

Payback period
Discounted cash flow analysis and net present value (NPV)
Internal rate of return (IRR)

ACCOUNTING RATE OF RETURN:

Accounting rate of return or ARR is a financial ratio used in project appraisal, but in case of this
ratio it does not incorporate the time value of money, and hence it is not an adequate measure for
capital budgeting.

Accounting rate of return (ARR) =

PAYBACK PERIOD

Average net income

---------------------------------Average investment

The simplest method of assessing a project is to calculate the payback period. This is the length
of time for the project to reach the cash flow breakeven point where the later cash inflows match
the initial cash outflows. The general principal is that projects which recoup their initial cash
investment faster are more attractive.
Many companies use the payback measure as a way of dismissing projects that do not pay back
within a set time period. This set period of time is often referred to as a hurdle rate. The
appropriate payback period or hurdle rate will vary from industry sector to industry sector and
from project to project.
The problem with payback is that it is very short term. It fails to consider cash flows beyond the
payback period, and therefore says nothing about the scale of the project. It also ignores the time
value of money. However, in India payback period method of project appraisal is not very
famous and not used by Banks/FIs.

DISCOUNTED CASH FLOW ANALYSIS AND NET PRESENT VALUE

(NPV)
Typical projects normally involve a sequence of cash outflows followed by a sequence of cash
inflows. Discounted cash flow or DCF analysis calculates the net cash flow as if all the future
cash outflows and inflows occurred simultaneously at the same point in time, which is normally
the first day of the project. The result is called the Net Present Value or NPV. Future cash flows,
however, must be adjusted to allow them to be compared on an equivalent basis with cash flows
that take place at the start of the project. Future cash flows must be adjusted for the time value
of money and a risk premium.
Time value of money
The time value of money reflects the principal that cash received today is worth less than the
same amount of cash received in a years time. A rational investor would prefer Rs.100 today
rather than Rs.100 in a years time as the Rs.100 today could be invested in a bank where it
would earn interest and grow to an amount greater than the Rs.100 received in a years time. The
discount rate, used in DCF analysis, incorporates the time value of money by including the riskfree rate of return that could be earned on Rs.100 invested risk-free at, say, a bank or in a
government bond.
Risk premium
A rational investor, if given the choice between investing in a bank or bond promising to pay 5%
interest a year and a project to build a series of holiday homes on Mars, which also promises to
pay 5%, an investor would probably prefer to invest in a bank. Investors are concerned about risk
and reward. They demand a higher reward or return for assuming higher levels of risk. Any
project which is deemed more risky than a risk-free investment, such as investing in a bank, will
require an additional return, which is called the risk premium, to compensate for the additional
risk.

Discount rate

The combination of the risk-free rate of return and the risk premium gives the discount rate,
which is used in DCF analysis to adjust future cash flows so that they appear as if they were
received at the start of the project. The discount rate that is used in the DCF Analysis is Weighted
Average Cost of Capital (WACC).
In order to calculate the WACC a number of assumptions need to be made:
1.
2.
3.
4.
5.

A is the proportion of the project financed by equity

E is the cost of equity in nominal terms
B is the proportion of the project financed by debt
R is the cost of debt in nominal terms
T is the tax rate

If the cost of equity is the discount rate that would be used to discount the cash flows only
To equity holders and the cost of debt is the discount rate used to discount cash flows only
To debt holders, the WACC would be written as: WACC= (A*E) +B*R*(1-T))

Figure : WACC

INTERNAL RATE OF RETURN:

There are two problems associated with using NPV as the basis for decision-making:
The discount rate has to be calculated or assumed in advance.
The size and scale of projects are infinitely variable, so the NPV of one project cannot
easily compared with another.

To compensate for these it is possible to use a form of breakeven analysis that identifies the
discount rate where the project has an NPV of zero (it can also be known as the highest discount
rate the project could support before generating a negative NPV). This point is known as the
internal rate of return or IRR.
As the discount rate increases so the NPV of the project will fall. The graph below shows the
NPV for a range of discount rates.

Figure :IRR
The graph is a curved shape so the IRR has to be found by trial and error or interpolation
between two known points. Even excel spreadsheets use a trial and error iterative process to find
the breakeven point. In spreadsheets the IRR function can be used to find the breakeven interest
rate.
The syntax is:
IRR (range, guess).

DRAWBACK OF USING IRR:

For projects that swing back and forth with years of surplus cash and years of investment, it is
possible to have more than one IRR for the project. This can be explained with an example.

For instance if we say that the below chart shows the cash flows of a project:
Year
0
Cell no.
E1
Cash flow -100

1
F1
-500

2
G1
-50

3
H1
500

4
I1
1000

5
J1
500

6
K1
0

7
L1
-500

8
M1
-1000

Now, if we calculate the NPV of this project at different discount rates, the graph will be like,

Figure :NPV
In the above data set, there are two IRR points. One is at about 5% and the other at around 29%.
Which is correct? Mathematically, both are correct. For investment purposes, the shape of the
graph shows that this project will be successful if discount rates are more than 5% but less than
29%
Using the IRR function in a spreadsheet we get unpredictable results, and for the above data set:
IRR (E1:M1, 10%) =5.4%.
IRR (E1:M1,30%) =29.3%.
The above problem arises only if there is more than one change of sign in the series of cash flow
data. If the project profile follows the typical investment in early years followed by a surplus in
later years, there will be only one IRR point.

SENSITIVITY ANALYSIS:
Sensitivity analysis is a technique for investigating the impact of changes in project variables on
the base-case (most probable outcome scenario). Typically, only adverse changes are considered
in sensitivity analysis. The purpose of sensitivity analysis is:

To help identify the key variables which influence the project cost and benefit streams. In
Infrastructure projects, key variables to be normally included in sensitivity analysis
include power demand, investment cost, O&M cost, financial revenues, economic
benefits, financial benefits, raw material cost and availability and discount rates.
to investigate the consequences of likely adverse changes in these key variables;
to assess whether project decisions are likely to be affected by such changes; and,
To identify actions that could mitigate possible adverse effects on the project.

Risk and SWOT Analysis:

Risk Analysis Allocation & Mitigation

Risk Factor

Allocated To

Proposed Mitigation Mechanism

NTPC

The equity contribution for the Power Project

would be brought in by NTPC through internal
accruals.

Management Risk
Sponsor Risk

Considering the quantum of cash accrued

annually by NTPC, the sponsors risk is
mitigated
Pre-completion risk

Risk Factor

Allocated To

Approvals
Permits

and NTPC

Construction
Cost Overrun

Period/ EPC
Contractors

Proposed Mitigation Mechanism

The project has to receive approval for land and
water allocation, while environmental clearance
from MoEF, GoI and chimney height clearance
from Airports Authority of India.
NTPC intends to award separate contracts for
different packages for the construction of the
Power Project on a fixed price, fixed time basis.
These contracts should have appropriate
liquidated damage clauses so as to protect
NTPC against cost
over runs. Further,
contingency provision has been made in the
project cost to take into account any additional
works.
The company has to receive approval for land
from Govt. of State.

Land Availability

NTPC

Debt funding risks

NTPC

NTPC proposes to raise the debt finance in

domestic currency. NTPCs leverage ratios are
low and coverage ratios strong, supported by
stable cash flows. Liquidity is also comfortable
for NTPC considering access to large
syndicated facilities and a balanced debt
maturity profile and significant cash balances.

Debt Servicing

NTPC

The minimum DSCR falls below 1 with average

DSCR of around 1.25. However NTPC has
proposed for support of internal accruals for
such quick debt repayments.

Foreign
Risk

Exchange NTPC

Most of the Project cost components are being

paid for in domestic currency.
No foreign currency loan has been taken in this
project.

Post completion risks

Fuel Supply

NTPC

The annual coal requirement 800 MW capacity

has been estimated to
be about 0.78 kg per
kWh at 85% PLF considering average Gross
Calorific Value of 2800 Kcal/kg and station
heat rate of 2200
kCal/ kWh.
Application for coal linkage has to be submitted
to Ministry of Coal, Govt. of India.

Risk Factor

Allocated To

Proposed Mitigation Mechanism

Transportation of

NTPC

NTPC proposes to have pit head generating

stations therefore there
will be
negligible
transportation cost.

EPC contractor
/ NTPC

NTPC needs to undertake an extensive EIA

Study and formulate an Environment
Management Plan (EMP) to address any likely
negative impact of the project on its
Surrounding
environment.

Fuel
Environmental Risks

NTPC needs to obtain environment clearance

from MoEF. It also needs to ensure that various
packaged contracts for project components
should have suitable guarantees/ clauses with
respect to emission standards.
Availability of water

NTPC

The company has to receive water commitment

from Government of state for required water.

NTPC

Sufficient demand exists for NTPC to be able to

sell the power generated by the project.

Market Risk
Off take Demand &
Tariff risk

NTPC proposes to enter into PPA based on

CERC normative tariff which would protect the
returns for the Sponsors.
Payment Risk

NTPC

Appropriate payment
security
mechanism
should be negotiated / entered into with the
power off-takers. NTPC would be exposed to
the credit risk arising from the financials of
these distribution companies.
However, provision for at least two (2) months
sales through Letter of credit may be
incorporated in the PPA to be entered with the
off-takers.

Risk Factor

Allocated To

Proposed Mitigation Mechanism

NTPC

Since fuel price is a pass-through in the CERC

tariff, the company shall be insulated from fuel
price risk on account of any increase in cost of
coal.

Financial Risks
Fuel Price

Technology Risks
Equipment
performance

under Vendor/ NTPC

The various packaged contracts should provide

forsuitableLiquidatedDamagesfor
performance of Plant as per the specifications.
Further, O&M shall be undertaken in house
through a proper mix of trained and experience
officials. The Company expects to leverage the
experience gained while Operation &
Maintenance of the existing power plants.

Political Risks
Rehabilitation
Resettlement Risk

& NTPC

The Power Project does not involve any major

rehabilitation and resettlement issues, it may be
inferred that NTPC would endeavor to mitigate
the political risk.

SWOT Analysis:
Strengths

NTPC is renowned in the field of setting up power projects in India; hence the proposed
project is likely to benefit from the project management skills of its sponsor, viz. NTPC.
Project managed by NTPC enjoy high availability and operational efficiency, with
competitive fuel sourcing. Hence the proposed project is likely to benefit from the project
management skills of its sponsor, viz. NTPC.
Adequate land & water allocation is available which can be utilized for meeting the
project requirement during the operation period.

Weakness

Firm equipment cost of the Project has not been tied up.
NTPC proposes to enter into firm equipment supply contracts with qualified vendors,
which is expected to reduce uncertainties in project cost.

Opportunities

While the electricity shortage/deficit is being reduced by addition of close to 100,000

MW of generation capacity, there have been slippages in the actual capacity addition vis-vis the plan targets.
Electricity Act 2003 allows power producers open access to transmission lines, thus
allowing them to sell power directly to distribution and trading licensees. Hence, NTPC
should be in a position to sell the power in the open market, should the need arise in
future.

Threats

Ultra Mega Power Projects (UMPPs) may also impact the demand for power and costing
thereof, and can bridge the ongoing power deficit to a certain extent.

ABOUT THE PROJECT:

The financing of long-term infrastructure, industrial projects and public services, based upon a
non-recourse (Project Finance that is secured by some sort of collateral, usually property, plant,
equipment etc. is known as non- recourse financing; The issuer can seize the collateral if the
borrower defaults) or limited recourse financial structure, where project debt and equity used to
finance the project are paid back from the cash flow generated by the project. Project Financing
relates to financing against security of Project Assets. This becomes complex when a newly
formed company is to be financed, where risk of realization of cash flows could be major
constraint. As against Balance Sheet Financing for a well-established company like NTPC with
long term proven capability, net worth in excess of Rs.50000crore, rated AAA, proven track
record in project implementation and availability of multiple project cash flows as backup.
NTPC Ltd. desires to come up with a new project of 1000 MW coal based thermal power plant
as looking at the demand of power in India; the supply has to be matched to that level. Here
assuming that the project feasibility study has been done; however the land details has been kept
confidential and cannot be disclosed. As the feasibility study is over, we will concentrate on the
appraisal part of the project as to how to finance the project and whether the investment in this
project is worth it or not.
st

th

The project starting date is taken to be 1 April 2012 and project completion date to be 30 Oct
2016, which means the construction period is 55 months. The cost of the project at Rs.8 crore per
MW translates into a total cost of 8000 crore. The debt-equity ratio is taken to be 70:30. Same
has also been assumed as the normative debt equity ratio for financing generation projects by the
Central Electricity Regulatory Commission (CERC) in the CERC (Terms and Conditions of
Tariff) Regulations 2009. Based on the above, the debt and equity requirement for the Project
works out to approximately Rs.5600 crore and Rs.2400 crore respectively. NTPC proposes to
raise the debt component of the Project cost through domestic borrowings. The proposed funding
pattern is as under
Source of Funds
Equity

Debt
Rupee term loan
Total
Table: Sources of fund

% of Project Cost
30%

Amount (crore)
2400

70%
100%

5600
8000

As per CERC norms a project declared under commercial operation on or after 1.4.2009, if the
equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be
treated as normative loan, thus the company prefers going for 70:30 debt equity mix.

Equity

The equity requirement of Rs.2400 crore is envisaged to be brought in by NTPC. Given the

Companys huge cash reserves during FY 2010-11, no difficulty are envisaged in equity infusion
by them.
Rupee term Loan
The Company proposes to debt finance the project by raising rupee term loans aggregating
Rs.5600 crore, at the following terms
Table 6.2: Key Terms for availing Rupee Term Loan
Particulars
Facility

Terms
: Rupee Term Loan

Tenure of Loan

Moratorium

: 4 years

Repayment

: Repayment of principal amount 4 years after the moratorium

period.

Interest Rate

12 years, Yearly disbursement of amount

12.50% including financing fee.

Here the repayment period is 4+8 years where 4 years is the moratorium period where only
interest during construction (IDC) is paid as the construction period is for more than 4 years thus
we are taking moratorium to be four years. This IDC amount is already incorporated in the total
project cost, for IDC calculation refers Annexure.. The amount to repay IDC in case of
balance-sheet financing can come from the companys any other source which is the main benefit
in case of balance-sheet financing. For a plant of 1000 MW the construction period can range
from 50-60months, so after 55 months of moratorium the parent company will start its loan
repayment from its other projects or can re-finance the loan from other bank /FI. Here lies the
main advantage of Balance-Sheet Financing as even though the plant is not operative the lenders
have started getting back their money. As the repayment amount is 8 years which is less
compared to Project financing so the cash flow should be handsome enough to meet the cash
outflows.
If every organization is selling the same product, the differentiating factor can only come from
the quality and cost of the services that are offered. Therefore for a power sector company the
differentiating factor can be the tariff. The lower the tariff the better it is for company to get an
edge over its competitors for better sales. The tariff is totally regulated by the CERC (Central
Electricity Regulatory Commission). Seeing the importance of tariff for all the players in power
sector it becomes imperative for them to know by which mode they should finance their ventures
from money lenders i.e. Balance-sheet Financing or Project Financing so as to reduce the interest
on term loan and get a reduced tariff to get an edge over the competitors.

Components of Tariff: The tariff for supply of electricity from a thermal generating station shall
comprise two parts, namely, capacity charge (for recovery of annual fixed cost consisting of the
components specified to in regulations) and energy charge (for recovery of primary fuel cost and
limestone cost where applicable).
The tariff norms provide for recovery of Fixed Capacity Charges consisting of the following
components:

Return on Equity
Depreciation
Interest on Term Loans
Interest on Working Capital Loans
O&M charges
Cost of secondary fuel

Variable charges would essentially include Primary fuel (Coal) charges. Fixed capacity charges
would be recovered from the beneficiaries in proportion to the capacity allocated to them while
variable charges would be recovered as per the actual power drawl schedules given by the
beneficiaries.
(i)

Return on equity: ROE shall be computed on pre-tax basis at the base rate of 15.5%
to be grossed up as per clause given in the CERC regulation book which turns to be
24% approximately.

Provided that in case of projects commissioned on or after 1st April, 2009, an additional return of
0.5% shall be allowed if such projects are completed within the timeline specified in guidebook.
Rate of pre-tax return on equity = Base rate / (1-t) where t is the corporate tax rate
(ii)

Interest on term loan: The repayment for the year of the tariff period 2009-14 shall
be deemed to be equal to the depreciation allowed for that year.

The interest on loan shall be calculated on the normative average loan of the year by applying the
weighted average rate of interest.
For entering this component in the companys financial statement the Interest on term loan is
arrived by calculating it at the rate of interest at which it is been borrowed i.e. 12.0%. this
interest rate taken is the current interest rate prevailing in the debt market.
(ii) Depreciation: The salvage value of the asset shall be considered as 10% and depreciation
shall be allowed up to maximum of 90% of the capital cost of the asset.
Depreciation shall be calculated annually based on Straight Line Method @5.28% for 12 years
and after which the rest of the amount up to 90% shall be distributed equally every year for the
rest of the life of the project.

However for making an entry in to the P&L statement we have to calculate depreciation
according to Companys Act which says the salvage value shall be considered as 5% and
depreciation shall be allowed up to maximum of 95% of the capital cost of the asset.
(iii)

Interest on Working Capital: The rate of interest on working capital is taken to

be 11.75%

For entering this in the P&L statement the same as calculated above is entered.
(v) Operation & Maintenance Charges: It is based on the capacity of the power plant and the
year it starts it operation as given in the CERC guidelines. In this project the O&M cost turns out
to be 13.82lacs per MW per year on pro-rata basis.
The same values are entered in the expenses side of P&L statement.
(vi)Secondary fuel expense: This expense is calculated based on the no. of units of electricity
produced including the auxiliary power consumption and the cost of secondary fuel is estimated
at Rs. 50 per litre. The same values are entered in the expenses side of P&L statement.
The capacity charge (inclusive of incentive) payable to a thermal generating station for
a calendar month shall be calculated in accordance with the following formulae.
AFC x (NDM / NDY) x (0.5 + 0.5 x PAFM / NAPAF) (in Rupees);
Where,
AFC = Annual fixed cost specified for the year, in Rupees.
NAPAF = Normative annual plant availability factor in percentage
NDM = Number of days in the month
NDY = Number of days in the year
PAFM = Plant availability factor achieved during the month, in percent:
PAFY = Plant availability factor achieved during the year, in percent

Energy charge rate (ECR) in Rupees per kWh on ex-power plant basis shall be determined to
three decimal places in accordance with the following formulae
For coal based and lignite fired stations
ECR = {(GHR SFC x CVSF) x LPPF / CVPF + LC x LPL} x 100 / (100 AUX)
Where,
AUX = Normative auxiliary energy consumption in percentage.

CVPF = Gross calorific value of primary fuel as fired, in kCal per kg, per litre or per standard
cubic metre, as applicable.
CVSF = Calorific value of secondary fuel, in kCal per ml.
ECR = Energy charge rate, in Rupees per kWh sent out.
GHR = Gross station heat rate, in kCal per kWh.
LC = Normative limestone consumption in kg per kWh.
LPL = Weighted average landed price of limestone in Rupees per kg.
LPPF = Weighted average landed price of primary fuel, in Rupees per kg, per lt. or per standard
cubic meter, as applicable, during the month.
SFC = Specific fuel oil consumption, in ml per kWh.

The variable charges consist of the coal cost which is not at all under the control of power
generator. It totally depends on the consumption of coal which in turn will depend on the
electricity generated. Coal cost forms a major fraction of the tariff
After the tariff calculations, the P&L statement, Cash-flow Projections and Balance-sheet is
produced as shown in Annexure.
The IRR calculated from the calculations comes out to be 12.50%
The DSCR for all the years obtained is different for all the years which is more than 1 in each
year except for the first operation year as it has been operative only for 4 months. The average
DSCR comes to 1.24 which is quite acceptable as per industry norms which states DSCR of 1.2
and above is acceptable.

Details of Tariff Calculation

The following table lists the basis for arriving at the various components of fixed tariff for the
power generated from the Proposed Project, based on CERC (Terms and Conditions of Tariff)
Regulations 2009. It may be highlighted that no foreign exchange fluctuation has been added to
tariff.

Table: Basis for Tariff for Balance-sheet Financing

Component

Norm

Return on Equity

16%/(1-T); where T is the applicable tax rate i.e

Corporate tax rate

Depreciation

Depreciation rate @ 5.28% p.a. SLM for first 12 years

st
from 31 March of the year ending after project COD
(Date of Commencement), Balance asset value (up to a
max. of 90%) is spread over the balance life of the
project.

Component

Norm

Interest on Term loan

Interest rate is on actual basis.

For the purpose of the financial projections, interest rate
has been assumed @ 12.50 % p.a. on rupee component.
For arriving at the tariff as per CERC norms, normative
loan repayments considered equal to value of asset
depreciated during the year.

Interest on Working Capital

loans

11.75% p.a. as per prevailing SBI PLR

O&M Charges

Rs .1633 crores/MW / year

Cost of secondary fuel

Rs. 50 /litre at CERC approved consumption norm of 1

ml/kwh

As advised by the company, variable charges under base case scenario have been calculated
based on the estimated costs of coal with no escalation assumed for future years. The coal price
has been assumed as Rs.850 per tonne. This price is equivalent to the landed cost of coal and is
inclusive of all taxes, statutory duties, transportation costs, cost of development of mines, royalty
etc. Assuming this project to be a pit-head project transportation costs attached with the coal cost
is negligible.
After obtaining the fixed and variable cost, we arrive at the tariff. The tariff arrived would be
different every year as the interest on working capital component.
An important point to note here is that the no. of units of electricity sold is quite less than that
produced since some part of the energy generated is used by the auxiliary units and the main unit
to run.
Knowing the units sold and tariff the revenue is generated and as the costs are already calculated
we can make the profit and loss account and the PAT(Profit After Tax) is arrived at and along
with which the cash flow statement and the Balance-Sheet is made. The cash flow statement
made will play a significant role in procuring the loan from the money lenders, as no one would
like to invest in a company where the cash flow is not healthy.

ANALYSIS:
It may be reiterated that the above projections take CERC norms as the base, except that
escalation in fuel is excluded from tariff and tax rate has been calculated on standalone basis.
Any upsides in profitability obtained due to sale under competitive bidding route have not been
taken into account in the base case.
Based on the above projected financials, assumptions and the project evaluation parameters, the
project IRR (for 29 years project period) works out to be 11.05% p.a and WACC(net of tax)
works out to be 10.64% p.a ( considering 16% p.a return on equity with 30% proportion ,
domestic interest rate of 12.50% p.a. with 40% proportion and external commercial borrowing
rate of 10.00% p.a. with a portion of 30%).In view of this the project appears to be financially
viable.
If NPV is calculated at the rate less than IRR and comes out to be positive and if NPV it is
calculated at the rate of IRR and NPV is zero, the project is financially viable. Here in this
project NPV when calculated at the rate of 10% p.a. , the result comes out to 463.33 crore which
is positive and it calculated at IIR it comes out to be zero and when calculated at the rate of 14%
which is higher than the IRR, the NPV comes to be (-942.02). In view of this the project appears
to be financially viable.
In this Project, a hypothetical case study analyzed with a view to recommend the effective
application of funds to the projects either from equity/loan. Trainee has taken two types markets
i.e. Regulated Market, Market-Driven Economy for the comparison purpose.
From the case studies, it is observed that if it is a regulated market, it is advantage to NTPC,
to apply the Equity/Loans simultaneously and if it is a market-driven economy, it is advantage
to NTPC, to apply Equity first and then Loans.

RECOMMENDATIONS:
1. The company should consider only those projects where IIR is greater than WACC and
when there are two projects, the project with early PBP should be considered.
2. The company should gain approvals from the MOEF and all the other required
authorities before commencing the project.
3. All the land required for the project should be in the complete possession of the
NTPC Limited.
4. NTPC Limited should keep its leverage ratios low and coverage ratios strong
supported by stable cash flows which would indeed help the company to raise the debt
finance both in domestic currency and ECB.
5. The company should keep its construction period less than the moratorium period and
repay its loans as soon as possible in order to maintain the liquidity of the company.
Further, the company should levy appropriate damages on the main
contractors/suppliers to deter them for any delay in commissioning.
6. The company should keep a provision for increase in the provision cost due to
foreign exchange variations, fuel price risk.
7. There should be a constant source for the supply of fuel and other required materials.
Incase of any shortfall, the company should keep the provision for the alternate supply.
8. Comprehensive insurance package during construction by contractors should be ensured
by NTPC Limited. Adequate insurance should be taken by the company during
operation stage.
9. NTPC Limited should mainly focus on power deprived regions of the country.
Further unallocated power for government of India should mainly be sold to these
power deficit states.
10. The company should enter into the proper payment mechanism with the power offtakers. NTPC Limited would be exposed to the credit risk arising from the financials
of these distribution companies.
11. NTPC Limited should keep following its well established systems and practices for
O&M of the plant.