Introduction:
PFC has a wide and comprehensive role for promoting least cost technically sound, efficient and reliable power sector in India including generation, transmission and distribution systems, through its financial, technical and managerial services. Several entities, such as the State Electricity Boards, NTPC, IPPs such as Ispat Industries Ltd., etc. approach PFC for providing financial assistance for their projects. These entities provide a Detailed Project Report (DPR) along with their request for loan, which furnishes the necessary details about the project to the PFC. Besides that, the entity details and eligibility for loan sanction are evaluated by the IAD of PFC.
Project appraisal - the process of assessing and questioning proposals before resources are committed- is done by the Project Appraisal Division. This is done by using the DPR and the entity details provided by IAD, thereby evaluating the viability of a project. The parameter under which the project appraisal is done depends on the project and its purpose. The various types of power projects have different appraisal formats, depending on the specific features of the project. Broadly speaking, appraising a project involves examining the Sector viability and the Govt. policies in this regard and also the project’s financial & economic viability. For example, for any company that provides loan for the project, parameters such as FIRR, DSCR etc would be the most important factors on the basis of which they decide whether or not to provide financial assistance. Since PFC is committed to the economic betterment of the country, the economic returns/ benefits are also evaluated. For certain projects, even if the financial returns are not very attractive but the economic benefits that will accrue to the society are substantial, the loans are sanctioned. The need and necessity of the project is established before appraising it.
Project appraisal is an essential part of project finance; it involves a thorough analysis of the ability of the project to fulfill the desired objectives. Lending to power sector involves long gestation period, it is necessary for the lending institution to study the financial, technical & related credibility of the project as well as the entity. The study of financial background of the project and the promoters tells us about the ability to handle project efficiently.
The purpose of this study is to understand the project appraisal procedure adopted at PFC and to do an appraisal of proposed project “AMARKANTAK 300 MW Thermal Project” by ABC Ltd and to analyze the economic and financial viability of the scheme which would be set up in the state of Chhattisgarh.
The project is usually examined under the following heads:
- Credit Worthiness of the borrower
- Project Eligibility and Preference
- Moratorium & Repayment Period
- Security and guarantees provided
The Summer Internship involved carrying out financial and economic evaluation of the projects along with preparing an agenda note for the approval of the Board of Directors. For Financial and Economic Appraisal, the Financial Internal Rate of Return and Economic Internal Rate of Return were calculated. The Profit & Loss calculations were done and the Debt Service capability was calculated. Besides this, Sensitivity analysis was also done to evaluate the effect of various factors on the generation of electricity and hence the revenue realization.
The project was undertaken with the following objectives in mind:
- To Evaluate the Financial and Economic returns of the proposed projects
- To calculate the future Cash Flows and the DSCR of the IPP
Following were the findings of the Appraisal of the projects:
- The Project requires a loan amount of Rs. 1340 Crs and has a FIRR of 12 %.
This projects which are finally selected for funding should have the following attributes.
- The benefits from the project should be realizable and deliverable.
- It should involve local people and compensate adequately those displaced taking into account their needs.
- The project should be sustainable in the long run and care should be taken so that it does not run into financial or technical problems
- The entities involved should 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.
The Objectives of the Project Report:
- To analyze and perform a Project Appraisal of the proposed Project and to check whether the proposal is worth investing
- To understand the working methodology adopted by PFC to perform appraisal
- To prepare a financial model for the similar type of projects
- To give possible recommendation for a better assessment of the schemes
Number of Pages of Project Report: 95
Package Includes: Project Report
Project Format: Document (.doc)
Table of Contents of Project Report:
1. Objective
2. Research Methodology
3. Sources of Data
4. Indian Power Sector
4.1 Introduction
4.2 Industry Analysis
4.3 Legislations & Laws
4.4 Reforms In The Power Sector
4.5 Huge Investment opportunity
4.6 Conclusion
5 Power Finance Corporation
5.1 Introduction
5.2 Business Environment/Strategies
5.3 Major Clients of PFC
5.4 Appraisal System
5.5 Rural Financing
5.6 Foray into Global Market
5.7 Future Plans
6 Project Appraisal
6.1 Technical Appraisal
6.2 Geological Appraisal
6.3 Financial Appraisal
6.4 Economic Analysis
6.5 Investment Analysis in the power sector-the need
6.6 Managerial Appraisal
6.7 Marketing and Selling Arrangements
7 Project Appraisal Procedure at PFC
7.1 Introduction
7.2 Profile of Projects Division of PFC
7.3 Appraisal Procedure
7.3a Preliminary Appraisal
7.3b Detailed Appraisal
7.4 Appraisal Process
8 ABC AMARKANTAK 300MW THERMAL POWER Project
- Objective
8.1 Entity details
8.2 Project Details(Technical analysis)
8.3 Geological & Environmental Analysis
8.4 Managerial Analysis
8.5 Financial & Economic analysis
- Financial plan & Cost estimate
- Operational Costs, Prices and Assumptions
- Projects Cash Flow Statements and Cost Benefit Analysis
- Project Risk
- Sensitivity Analysis
8.6 Marketing & Selling Arrangement
8.7 Conclusion
8.8 Recommendations
8.9 Limitations
9 Bibliography
10 Annexure
