Hydro Project

Summer Internship Programme Report On

Cost Estimates & Risk Management Of

R.H.E.P & N.J.H.E.P

Undertaken In

Satluj Jal Vidjut Nigam Ltd An ISO 9001:2000 Certified Co.

Institute Of Marketing & Management New Delhi Submitted By: Nipun Mahajan Roll No: 06-J1-139 Course: PGDBM Year: 2006-08

Undertaking This is certified that the projects RHEP and NJHEP undertaken in Satluj Jal Vidyut Nigam Ltd are done originally by me. The data used in the report is obtained from the Corporate Planning Department of the company. The data collection, analysis and preparation of the report is novel and original.

Nipun Mahajan Roll No:- 06-J1-139 Batch : PGDBM

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Table Of Contents S.No

Topic

Page No

1

Acknowledgement

5

2

Executive Summary

6

3

Objective Of The Study

7

4

Research Methodology

8

5

Introduction

9

6

PROJECT –I Rampur Hydro Electric Project (RHEP 412 MW)

12

I.

Salient Features

14

Sources Of Finance

15

III.

Profitability Index Ranking

16

IV.

Internal Rate Of Return (IRR) Ranking

17

Comparative Financial Analysis

18

Application Of Funds

19

Cost Revision

21

II.

V. VI. VII. VIII.

Findings: Impact Of Cost Revision 

IX. X. 7

COG ,Tariff Calculation, Revision & Comparison

26

Resettlement & Rehabilitation Schemes

30

Benefits from the project

32

PROJECT-II Nathpa Jhakri Hydro Electric Project

33

(NJHEP 1500MW) I.

Salient Features

35

Requirements

36

III.

Sources Of Finance

37

IV.

Tariff Calculation & Summary

39

Application Of Funds

41

Cost Revision

43

II.

V. VI. VII.

Findings: 3 / 68

S.No.

VIII. IX.

Topic

Page No.



Actual Vs Estimated Cost

44



Cost Variation, reasons and factors

45

Problems/challenges in the implementation and measures

48

Benefits

50

8

Limitations of the study

52

9

Recommendations

53

10

Conclusion

54

11

Bibliography

55

12

Annexure I. Glossary (Abbreviation & Definitions)

56

II. RHEP Annexure

59

III. NJHEP Annexure

64

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Acknowledgement I express my heartfelt gratitude to several people for their direct and indirect assistance in the successful completion of my project. It is with the great pleasure, privilege and humility that I express my sincerest gratitude to SJVNL staff Shimla-9 H.P who, despite of their busy schedule, have happily rendered me valuable help and guidance. My special and sincere thanks to Mr.B.R.Sethi (Dy. Finance Manager) who guided me at every step of the summer internship. It was from his regular assistance that I’m able to get practical exposure of the financial operations in the company. The members of corporate planning department helped a lot in providing valuable data for analysis. Mr P.R.Murthi (Company Secretary) encouraged and inspired me to work on this project and helped throughout in the project by providing the valuable facts and information about RHEP & NJHEP.

I’m indebited to Prof.P.N.Rath, my teacher who directed me to work in this company (who is always encountered with huge risks) and learning about Risk Management helped a lot in furnishing my knowledge of the concerned topic. Without these extended supports and co-operation, the project wouldn’t have been the same.

Nipun Mahajan Roll No: 06-J1-139

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Executive Summary This report deals with the ‘Risk Management’ & ‘Cost Estimates & its Impact’ of Rampur Hydro Electric Project (RHEP) 412 MW and Nathpa Jhakri Hydro Electric Project (NJHEP) 1500 MW. Both projects are financed by foreign banks to a large extent. RHEP includes tedious evaluation of various financial institutions’ offers to fulfill the funds requirements of this project. The evaluation is done with the help of latest capital budgeting techniques. Since these hydro electric projects generally take long time and finance in their formation till execution; as a result it becomes very difficult to determine the exact amount of funds required by the projects. Their financial requirement is determined on the basis of estimates after detailed financial analysis. The finance includes a great deal of debt from different financial institutions which increases the risk. The Risk Management is done with the help of Cost Revision of the estimates at regular interval of time. The Revised Cost Estimates helps in determining future financial requirements and there by help in curbing the risk. The impact of cost revision on applied funds, cost abstraction, COG and tariff calculation has been explained in great detail in the project. The later part of report covers the Risk Management of NJHEP with the help of revised cost estimates (RCE I, II, III) at regular intervals of time along with currency wise application of funds and impact of loan repayment & other expenditures in tariff calculation. The reasons and different factors of variation in cost and its impact along with difference between actual and estimated costs (Why & How additional cost occurred in the project?) have also been discussed. Besides the social and economic upliftment of the people in its vicinity, the 1500 MW NJHEP has been designed to generate 6950.88 MU of electrical energy in a 90% dependable year with 95 % machine availability. Both NJHEP & RHEP have ushered in the social and economic up-liftment of the persons living in the vicinity of the Project i.e. of society at large.

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Objective Of The Study The hydel projects are time consuming projects and involve a lot of money and time from completion till execution; therefore there is always a huge financial risk. The future is uncertain and estimation of cost adds to the risk. Therefore the objective of the study is to determine and learn the process of cost estimation, cost revision, risk management in the company and there by seek answers for the following questions:  How the offer of the various financial institutions is being evaluated?  What is the impact of Cost Revision?  Why Cost Variation Occurs?  Why additional cost occurs after every revision?  What is the difference between actual & estimated cost and why it occurs?  How the risk of the debt/loan is managed?  What is the relationship between time, risk and cost?

7 / 68

Research Methodology In the projects the data collection and research is done with the help of various methods. The data collection includes:  Primary Method: 

Direct Personal Interview: The members of the corporate planning

department of the company were interviewed relating to facts, findings and financial analysis.  Secondary Method: 

Published Reports: The DPR of RHEP and NJHEP published by

the company consist of cost estimates and initial cost, used for revision.

The data analysis is done with the help of capital budgeting techniques such as NPV, IRR, and Profitability index. The other methods include Cost/Benefit Ratio, Ranking Methods and Graphical methods such as pie charts, tables, bar charts, area charts for effective evaluation, projection and decision making.

8 / 68

Introduction/ About SJVNL The Satluj Jal Vidyut Nigam Limited – SJVN (formerly Nathpa Jhakri Power Corporation Limited - NJPC ) was incorporated on May 24, 1988 as a joint venture of the Government of India ( GOI ) and the Government of Himachal Pradesh (GOHP) to plan, investigate, organize, execute, operate and maintain Hydro-electric power projects. The present authorized share capital of SJVNL is Rs.4500Cr. The Nathpa Jhakri Hydro – Electric Project – NJHEP (1500 MW) was the first project undertaken by SJVNL for execution. In addition to the financial assistance from the World Bank, SJVN has also been financed as loan by a Consortium of European Banks, the Power Finance Corporation (PFC) and various domestic commercial banks. Besides NJHEP, the present hydro project is RHEP (412 MW) and future projects to be undertaken by SJVNL are Luhri Hydro Electric Project (LHEP 700 MW), Khab Hydro Electric Project (KHEP 636 MW), Devsari Hydro Electric Project(DHEP 300MW), Jhakol Sankri Hydro Electric Project(JSHEP 33 MW). Besides the social and economic upliftment of the people in its vicinity, the 1500 MW NJHEP has been designed to generate 6950.88 MU of electrical energy in a 90% dependable year with 95 % machine availability. It is also providing 1500 MW of valuable peaking power to the Northern Grid. Out of the total energy generated at the bus bar, 12 percent is supplied free of cost to the home state i.e. Himachal Pradesh. From the remaining 88% energy generation, 25% is supplied to HP at bus bar rates. Balance power has been allocated to the beneficiary states / UTs of Northern Region by Ministry of Power, Government of India. Besides above, indirect benefits have also accrued to the region by way of increase in agriculture and industrial production. In addition, the project has provided gainful employment to a large number of skilled and unskilled workers and has also opened the landlocked hinterland by providing essential facilities such as schools, hospitals

9 / 68

etc. for the people of the area. Thus, 1500 MW NJHEP has ushered in the social and economic up-liftment of the persons living in the vicinity of the Project i.e. of society at large. Financial Position Of SJVNL:

561.5

AMOUNT Rs/Cr

600

498.2

500 400

308.3

298.5

300 200 100 0 31-3-05

31-03-06 YEAR ENDING

BEFORE TAX AFTER TAX

The Financial Position of SJVNL has improved from the past two years. The sudden increase in the profit is a result of control over expenditures besides increase in the sales. The available profit of the SJVNL is used as one of the sources of finance in the form of reserves & surplus for the purpose of repayment of loans and financing of the current & future projects.

10 / 68

Awards And Honours  On 28th August 2006 the Satluj Jal Vidjut Nigam Limited (SJVNL) receives Industry Excellence Award and Udyog Rattan Award of the Institute Of Economic Studies New Delhi.  On 31st Aug 2006 the Satluj Jal Vidjut Nigam Limited (SJVNL) receives Greentech Silver Award for upgrading ecological balance in the projects of the company.  The Upcoming Rampur Hydro Electric Project 412 MW, also received the Greentech Bronze Award for institutional organized dumping activities.  On 3rd Sep 2006 the Satluj Jal Vidjut Nigam Limited (SJVNL) receives Industry Excellence Award from Delhi Telgu Academy.

11 / 68

PROJECT –I

12 / 68

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Salient Features: 1) Location:

Rampur (H.P)

2) River:

Satluj

3) Stretch:

15 Km Down Stream

4) Tail Race:

Development of 1500mw (6x250) of NJHEP

5) Objective:

Power on demand

6) Availability: 412mw by 2011 7) A 15.088 km long, 10.50 m diameter circular concrete lined Head Race Tunnel. 8) Energy generation of 1969.69 Gwh during a 90 % dependable year, with 95 % machine availability.

Hydro : Thermal Present

25

: 75

After RHEP

40

: 60

Requirements:  Funds ♠ Before Revision: Rs.1984.19 Cr ( Till 03-05) ♠ After Revision: Rs.2047.03 Cr (After 03-06)  Water: Desilted water from tail race of NJHEP  Land: 101-38-08 Hectares of Land ♠ 69-37-62 hectares: Forest land ♠ 32-00-46 hectares: Private land  Time: 60 months

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Sources Of finance: Debt-Equity Ratio

1388.93

Amount in Rs/Cr EQUITY DEBT

595.25

The sources of finance include equity and debt. The debt equity ratio is 70:30. The loan is provided by the Industrial Bank for reconstruction & Development (IBRD) under Variable Spread Loan (VSL) scheme. The IBRD is chosen after the detail analysis of different domestic and foreign financial institutions. Equity Capital Classification

79%

Govt Of India Govt Of Himachal Pradesh INTERNAL SOURCES

4%

17%

The equity capital consists of Capital from Govt. Of. India, Govt. Of Himachal Pradesh and Internal Sources (SJVNL fund)

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Evaluation Of The Financial Offers Profitability Index Ranking

1.400

P-INDEX

1.200 1.000 0.800 0.600

6

4

3

2

5

1

PROFITABILITY INDEX RANKING

0.400 0.200 0.000 PFC

REC

IBRD(FSL)

IBRD(VSL)

BNP

KFW

SOURCES OF FINANCE

The above bar diagram shows the profitability index ranking of various financial institutions. The IBRD (VSL) is chosen even though the KFW is at the top, but KFW does not provide loan for the civil works. The profitability index is one of the methods used to determine which financial institution is economical. Since banks of different countries deals in different currencies, the profitability index method is suitable for this purpose. The higher the profitability index, the higher will be the rank of the respective bank.

Note: For calculation refer annexure: RHEP LIBOR

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Internal Rate Of Return Ranking

8.88 8.16

9 8

8.43 7.51

7.43

IRR (%)

7

5.5

6 5 4 3

IRR RANKING 6

4

3

2

5

1

2 1 0 PFC

REC

IBRD(FSL)

IBRD(VSL)

BNP

KFW

FINANCIAL INSTITUTIONS

The above bar diagram shows the Internal Rate of Return ranking obtained after analysis of the inflows and outflows data provided by the above mentioned financial institutions. The lower the IRR the higher will be the rank. Although KFW has rank one but the Nigam has chosen IBRD(VSL) as full loan mentioned was not available from KFW.

Note: For interest rate refer annexure: RHEP LIBOR

17 / 68

Summary Of Comparative Financial Analysis Of Different Financial Institutions SOURCES OF FINANCE

PFC

REC

IBRD(FSL)

IBRD(VSL) BNP

KFW

CURRENCY

Rs/Cr

Rs/Cr

Rs/Cr

Rs/Cr

USD/m

EURO/m

DRAWN AMOUNT

1388.928

1388.928

1388.928

1388.928

308.651 96.000

INSURANCE PREMIUM DUE

0

0

0

0

28.204

0

FINANCED

0

0

0

0

0

0

INTEREST DUE

996.560

883.753

596.383

586.755

133.763 23.777

IDC

312.075

277.397

167.545

164.845

37.579

6.687

INTEREST CAPITALISED

312.075

277.397

167.545

164.845

37.579

6.687

INSURANCE

PREMIUM

0.225

AGENCY FEE REPAYMENT

1388.928

1388.928

1388.928

1388.928

308.651 96.000

FRONT END FEE

1.389

1.389

3.472

3.472

1.073

0.288

COMMITMENT FEE

0

0

8.710

6.259

1.110

0.432

HEDGING COST

0

0

38.087

38.087

8.507

2.426

GUARANTEE FEE

0

0

143.241

143.241

8.507

9.869

TOTAL OUTFLOW

2386.870

2274.060

2178.810

2166.740

514.630 132.790

PV OF TOTAL OUTFLOWS

1130.000

1069.000

1036.000

1028.000

244.000 62.680

PV OF TOTAL INFLOWS

1145.000

1145.000

1145.000

1145.000

251.000 79.680

PROFITABILTY INDEX

1.010

1.070

1.110

1.114

1.030

1.271

RANKING

6

4

3

2

5

1

IRR

8.88%

8.16%

7.51%

7.42%

8.43%

5.50%

IRR RANKING

6

4

3

2

5

1

PROFITABILTY INDEX

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Application Of funds Before Cost Revision:

TOTAL COST:Rs.1984.19Cr

0%

13%

38%

MAJOR CIVIL WORKS HYDRO MECH. WORKS INFRASTRUCTURE WORKS ESTABLISHMENT ELECTRO-MECH.WORKS IDC

33%

OTHER FINANCIAL CHARGES

3%

12%

1%

The pie chart shows the application of funds in RHEP. Majority of the funds is applied in ‘Major Civil Works’ and ‘Electro-Mechanical Works’. The infrastructure and IDC share the funds in the same proportion. The abstraction of the cost is done on the basis of the estimates made after detailed analysis of the financial requirements of the project.

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After Cost Revision:

TOTAL COST:Rs.2047.03Cr

0%

13%

39%

MAJORCIVIL WORKS HYDROMECH. WORKS INFRASTRUCTUREWORKS ESTABLISHMENT ELECTRO-MECH.WORKS IDC

32%

OTHERFINANCIAL CHARGES

3%

12%

1%

The project cost was revised on 03-2006 as a result the total cost of project rises from Rs.1984.9 Cr to Rs.2047.03Cr. The abstraction of the cost shows slight increase in the Major civil works. But Electro mechanical works funds requirement decline by 1%. The additional cost occurred due to delay in implementation and losses on account of flash floods in the river thereby resulted in increasing the overall cost of project.

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Cost Component After Revision

900

811 776

800

646

646

Amount Rs/Cr

700 600 500 400 245

234

300 200 100

248

66 11

260

69

12

1.3

1.5

0 CIVIL WORKS HYDROMECH.

INFRASTRUCTURE

ESTD

ELECTRO-MECH

IDC

OTHERS

COST COMPONENTS

The Above Bar diagram shows the variation in the cost components after Revised cost Estimates (RCE). After revision each component has shown some increase. The basis for cost revision are ‘Wholesale Price Index (sep 2006) published by RBI’, Labour cost 2006 as per notification of the Govt., Loan Interest rate (LIBOR 06), Indian Oil Corporation Price lists, SAIL price lists.

21 / 68

31-3-05 31-3-06

Civil works Cost Revision

450

423

400 350 Rs/Cr

300

407

243

250 143

200 150

142

226 135

100

135

50 0 MATERIALS

LABOUR

MACHINERY

COST COMPONENTS

MISC.

31-3-06 31-3-05

The updated cost of civil works is shown in the above bar diagram. The material cost changes as per the revised cost of the material component in the wholesale price index (sep 2006 prices). The Labour component cost increases as per the notification of the Govt. The machinery component includes the cost of fuel, machinery and transport. The weighted mean of fuel index, machinery escalation and transport index is used to revise the machinery component cost. There is increase of 3.92% in materials cost, 7.69% in Labour, 5.83% in machinery and 4.96% in the miscellaneous component there by showing 5.31% increase in the Civil Works cost. The table of cost revision is Shown Below:

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CIVIL COST REVISION SNO 1 2 3 4 5 6 7 8

PARTICULARS COST OF CIVIL WORKS AS ON 03-05 DEDUCTIONS PRELIMINARY LAND MAINTAINENCE LOSSES ON STOCKS ESTABLISHMENT T&P INDIRECT EXPENSES

Rs/Cr 1088.63 29.62 59.02 8.58 0.86 66.36 10.07 10.52 185.03 903.6

BALANCE TO BE ESCALATED A

B

C

D

MATERIAL COMPONENT (45% OF THE ABOVE) % INCREASE ON PROJECTED BASIS INCREASE IN AMOUNT ESCALATED MATERIAL AMOUNT

406.62 3.92% 15.94

LABOUR COMPONENT (25% OF THE ABOVE) % INCREASE INCRASE IN AMOUNT ESCALATED LABOUR AMOUNT

225.9 7.69% 17.37

MACHINERY COMPONENT (15% OF THE ABOVE) % INCREASE INCREASED AMOUNT ESCALATED MACHINERY AMOUNT

135.54 5.83% 7.9

MISC. COMPONENT (15% OF THE ABOVE) % INCREASE INCREASE IN AMOUNT ESCALATED MISC. AMOUNT

135.54 4.96% 6.72

UPDATED COST OF CIVIL WORKS= A+B+C+D

422.56

243.27

143.44

142.26

951.53

OVERALL % INCREASE IN COST 5.30% Notes: The detail of the escalation and revision of each sub component is given below:

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REVISED COST OF MATERIAL COMPONENT OF CIVIL COST

A S.NO 1 2 3 4 5 6 TOTAL

AVERAGE INCREASE REVISED COST OF MATERIAL COMPONENT OF CIVIL COST

B S.NO 1

PARTICULARS COST OF LABOUR ON MARCH 05 a) WAGES b) WAGES

S.NO 1 2 3

31-03-05 31-03-06

7.69%

WEIGHT 14.2 8.4 4.3

WEIGHTED MEAN REVISED COST OF MACHINERY COMPONENT OF CIVIL COST INDEX NO. OF WHOLESALE PRICE FOR ALL COMMODITIES YEAR 2005 2006

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AMOUNT Rs/Cr 225.9 65 70

AMOUNT Rs/Cr 135.54 3.77

T & P CHARGEABLE TO PROJECT (CIVIL COST) TOTAL COST OF SPECIAL T&P MARCH 05 COST OF SPECIAL T&P MACHINERY & TRANSPORT EQUIPMENT COMPONENT FUEL INDEX MACHINERY TRANSPORT

% INCREASE

% INCREASE 0 4.01 3.85 4.15 3.98 3.63 19.62 3.92%

YEAR

% INCREASE (AS PER THE NOTIFICATION OF THE GOVT) REVISED COST OF MACHINERY COMPONENT OF CIVIL COST

C

D

GENERAL COST 424 441 458 477 496 514

YEAR 2001 2002 2003 2004 2005 2006

5.83

AMOUNT Rs/Cr 1.89 1.99 4.96%

Tariff Calculation PROJECT

RHEP (412MW)

TARIFF CALCULATION FOR THE FIRST YEAR

S.NO 1

DEBT EQUITY RATIO PARTICULARS TOTAL COST OF PROJECT

70:30 AMOUNT 1984.18

a) EQUITY

2 3 4 5 6 7 8 9

10

UNITS Rs/Cr

595.254

b) LOANS ANNUAL ENERGY GENERATION (90% Dependable year)

1388.928

AUXILIARY CONSUMPTION @ 0.5% OF THE ABOVE ENERGY AVAILABLE AFTER AUXILIARY CONSUMPTION TRANSFORMATION LOSSES @0.5% OF THE ABOVE ENERGY AVAILABLE AFTER TRANSFORMATION LOSSES FREE POWER TO Govt Of Himachal Pradesh @12% ENERGY AVAILABLE FOR SALE AFTER FREE POWER DISTRIBUTION FIXED RUNNING CHARGES A) CAPACITY CHARGES 1. INTEREST ON LOAN @7.5% 2. DEPRECIATION CHARGES TOTAL CAPACITY CHARGES B) ENERGY CHARGES 1. OPERATION & MAINTENANCE CHARGES(O&M) @1.5% 2. RETURN ON EQUITY @ 14% 3 INTEREST ON WORKING CAPITAL@ 9% 3.1) O&M CHARGES @1 MONTH 3.2) TWO MONTHS AVERAGE BILLING a) CAPACITY CHARGES b) ENERGY CHARGES c) MAINTAINENCE & SPARES CHARGES WORKING CAPITAL INTEREST ON WORKING CAPITAL @ 9% TOTAL ENERGY CHARGES TOTAL CHARGES SALE RATE AT BUS BAR AFTER 12% FREE POWER TO GOHP a) CAPACITY CHARGES b) ENERGY CHARGES TOTAL

M.U

9.85

M.U

1959.84

M.U

9.80

M.U

1950.04

M.U

234.01

M.U

1716.04

M.U

243.06

Rs/Cr

104.17 138.89

29.76 83.34

Rs/Cr Rs/Cr

2.48

Rs/Cr

40.51 8.85 19.84 81.68 7.3512

Rs/Cr Rs/Cr Rs/Cr Rs/Cr Rs/Cr Rs/Cr Rs/Cr

120.4512 363.5112

142 70

Note: For 35 years tariff calculation refer annexure: RHEP tariff 35 years

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1969.69

212

PAISE/UNIT

Findings Impact Of Cost Revision: A) Cost Of Generation Comparison 180

COST OF GENERATION

160

PAISE/UNIT

140 120

A 100 80 60 40

C B

20 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

YEARS

AFTER REVISION BEFORE REVISION

The above diagram shows depicts the comparison in the cost of generation for 35 years before and after revision. The cost of generation (paise /unit) follows the same pattern even though there is increase in the COG after cost revision. Notes: A: It shows the decline in the cost of generation from 11th year. The cost of generation includes payment of interest on loan from 1-10 years. B: It shows the period from 11-20 years C: There is increase in the COG of electricity as there is no refund of the depreciation amount which results in the COG escalation.

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B) Cost Benefit Ratio

ECONOMIC IRR AND COST BENEFIT ANALYSIS PROJECT RHEP 412 MW PROJECT COST 2047.03 Rs/Cr

YEAR

1* 2* 3* 4* 5* 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

EXPEND

O&M Exp

W. CAP

337.97 334.91 489.03 417.11 207.6 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7 30.7

83.67

TOTAL OUTFLOWS

337.97 334.91 489.03 417.11 207.6 114.38 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71 30.71

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ENERGY (mu)

1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34 1752.34

TARIFF

2.36 2.3 2.24 2.18 2.12 2.07 2.01 1.95 1.89 1.84 0.7 0.71 0.72 0.73 0.75 0.76 0.77 0.79 0.8 0.82 1.39 1.41 1.42 1.44 1.46 1.4 1.42 1.44 1.46

AMOUNT Cr

NET AMOUNT

413.55 403.04 392.52 382.01 371.50 362.73 352.22 341.71 331.19 322.43 122.66 124.42 126.17 127.92 131.43 133.18 134.93 138.43 140.19 143.69 243.58 247.08 248.83 252.34 255.84 245.33 248.83 252.34 255.84

-337.97 -334.91 -489.03 -417.11 -207.60 299.17 372.33 361.81 351.30 340.79 332.02 321.51 311.00 300.48 291.72 91.95 93.71 95.46 97.21 100.72 102.47 104.22 107.72 109.48 112.98 212.87 216.37 218.12 221.63 225.13 214.62 218.12 221.63 225.13

30 31 32 33 34 35 Total

-178.66

30.7 30.7 30.7 30.7 30.7 30.7

1607.96

1075

-83.67

30.71 30.71 30.71 30.71 30.71 -231.622

1752.34 1752.34 1752.34 1752.34 1752.34 1752.34

1.48 1.48 1.5 1.53 1.56 1.59

259.35 259.35 262.85 268.11 273.37 278.62

228.64 228.64 232.14 237.40 242.66 510.24

0

2682.808

61331.9

50.49

8847.56

6164.76

 The economic Internal Rate Of Rate: 11.64%.  The Cost Benefit ratio is 1:3.2

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C) Tariff Comparison After Revision

250

PAISE / UNIT

200 A

150

C B

100 50 0

1

2

3

4

5

6

7

8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

YEARS

AFTER REVISION BEFORE REVISION

The above diagram shows depicts the comparison in the Tariff/Unit for 35 years to be charged from the consumers for the electricity to be provide to them, before and after cost revision. The Tariff (paise /unit) follows the same pattern even though there is increase in the COG and Tariff after cost revision. Notes:  A: It shows the decline in the cost of generation results in the decrease in Tariff/unit from 11th year. The cost of generation includes payment of interest on loan from 1-10 years.  B: It shows the period from 11-20 years  C: There is increase in the COG of electricity as there is no refund of the depreciation amount which results in the COG escalation, ultimately results in the Tariff/ unit to be charged from the consumers.

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Resettlement and Rehabilitation Schemes The Resettlement and Rehabilitation schemes are launched by SJVNL for the project affected families of RHEP. It includes:  Family  Project Affected Area/ Zones  PAF: ♠ With land ♠ Without land  Shopkeepers displaced by the project Granted Resettlement S.No Particulars

Before

After

Relief Amount

1

Land Before Acquisition

>= 5 Bighas

<=1

Rs.65000/-

2

Land Before Acquisition

<=5 Bighas

<=1

Rs.55000/-

3

Land Holding

Nil

1-5

Rs.45000/-

4

Cattle shed acquired/ Family

5

Family:

Rs.5000/-

Case Land less or house less or both Will be provide an independent house with a buildup plinth area of 60 sq mt. Or a plot to buildup a house- 60sq mt + Construction cost of the house @ Rs.3000/ sq.mt Case Constructed house on his own with own land > =60 sq mt Rs3500/- sq.mt Case Constructed house on his own with own land <60 sq mt Amount as per pro- rata basis 6

Shopkeepers: Allotment of shops in the market complex; wherever the Nigam constructs such market place + Rs.10000/- OR Rs.40000/-

7

Infrastructural facility such as water supply, sewage, drainage, electricity, street & approach paths ( Included in the project cost)

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Employment: ♠ One Member, each of PAF: Employment in the category of skilled, semi-skilled, unskilled workmen:- according to the fulfillment of the requirements. ♠ Land is acquired but not in the project:- This is a case of secondary employment; provision for their employment will be created. ♠ Scholarship for the PAF (Professional or Vocational course). Other Facilities: ♠ PAF will be provided infrastructural up gradation schemes such as:- mobile health centre, internal roads, approach roads, drinking

water supply schemes,

community /welfare centres, infrastructural facilities for

the schools, street

lighting. ♠ Awareness programmes /camps for the PAF (wef sep-06) ♠ Primary school ♠ Transportation @ project cost till house/ shop gets constructed or Rs.5000/-

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Benefits of RHEP 412 MW  On completion, the project will generate approximately 412 mw of power and 1770 GWh of electricity in a 90% dependable year.  The Power generate by RHEP will feed the Nothern Indian Energy Grid, directly benefiting consumers in the state of north India and improving availability of power at reasonable cost.  Sale of power will provide the state of Himachal Pradesh with a royalty benefit of 12% of the power generated; equivalent to $10 million each year in addition to state share in the plant’s dividends.  Nathpa Jhakri Hydro-Electric Project (NJHEP) is one of the most eco-friendly Projects in the country. Being run of the river project, it has minimum impact on ecology of the area and least disturbance to flora and fauna.  This project will generate in to Northern Region Grid about 7,000 GWh of electricity each year.

In doing so, it will delay the necessity of the

construction of either coal or gas fired thermal plant of the same capacity, and will thus hugely reduce India’s green house gas emissions and positively impact on India’s global warming effect.

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PROJECT-II

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Salient Features:  Nathpa Jhakri Hydro-Electric Project (NJHEP) is one of the largest underground power house in the country to house six units of 250 MW each and aggregate capacity of 1500MW in a single underground cavern.  The underground desilting complex would be one of the largest underground complexes in the world to exclude sediments particles above 0.2mm so as to prevent these from entering into head race tunnel and in turn in to the turbines.  27.4km long head tunnel is one of the longest power tunnels in the world.  301m deep surge shaft is one of the deepest surge shafts in the world.  Nathpa Jhakri Hydro-Electric Project (NJHEP) is one of the most eco-friendly Projects in the country.  Being run of the river project, it has minimum impact on ecology of the area and least disturbance to flora and fauna.  The Major Civil Works of

NJHEP

were awarded during June – Sep. 1993

and the construction works commenced in early 1994.  The Project stretches over a length of about 50 kms. from the Dam site to the Power House site, on the Hindustan-Tibet Road (NH-22), which also connects the rail head to the Project.

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Requirements:  Financial Requirements: ♠ Initial Cost: Rs.1678 Cr ♠ After First Revision: Rs.4337.9 Cr ♠ After Second Revision: Rs.7666 Cr ♠ After Third Revision:Rs.8563 Cr  Time Requirements: ♠ Preconstruction Activities: 1.5 Years ♠ Main construction works: 5.5 Years  Water Requirements: Direct intake from Satluj River  Land Requirements: It Includes ♠ Category wise: Govt Land and Private Land ♠ Rehabilitation Package  Vendors: ♠ For Electro mechanical equipment:  M/s Electrowatt Engineering Switzerland.  M/s Nippon Koei Japan.  M/s WAPCOS India ♠ Implementing Agency  M/s WAPCOS India  CWC

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Sources Of Finance

50%

`

50% EQUITY

LOAN

Initially the project cost was Rs.8495.03 Cr. which was equally obtained from both major sources of finance. i.e Rs.4247.5 Cr each from equity and loans. Equity Classification:

75%

GOI GOHP

25% The fund from equity was being obtained from Govt. Of India and Govt. Of Himachal Pradesh. The Govt. Of India provided Rs.3185.635 Cr and Govt. Of Himachal Pradesh Rs.1061.879Cr for the major construction works of the project.

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Loan Classification: 20% 36%

34%

10% IBRD BUYERS CREDIT PFC OT HER BORROWINGS

The arrangement of loan was made from different financial institutions viz. Industrial Bank For Reconstruction & Development (Rs.1537Cr), External Commercial Borrowings (Rs.434.63Cr), Power Finance Corporation (Rs.1438Cr) and Other Domestic Borrowings (Rs.838.986Cr).

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Tariff Calculation PROJECT TARIFF CALCULATION FOR THE FIRST YEAR SN O 1

2 3 4 5 6 7 8 9

10

11

PARTICULARS TOTAL COST OF PROJECT A)EQUITY 1)GOVT OF INDIA 2)GOVT OF HIMACHAL PRADESH B) LOANS ANNUAL ENERGY GENERATION (90% DEPENDABLE YEAR) AUXILIARY CONSUMPTION 0.5% OF THE ABOVE ENERGY AVAILABLE AFTER AUXILIARY COMSUMPTION TRANSFORMATION LOSSES 0.5% OF THE ABOVE ENERGY AVAILABLE AFTER TRANSFORMATION LOSSES FREE POWER TO GOHP @12% ENERGY AVAILABLE FOR SALE AFTER FREE POWER DISTRIBUTION ANNUAL CAPACITY ENERGY DEPRECIATION (ACCTUAL) DEPRECIATION (ADVANCED) SUB TOTAL INTEREST ON LOAN INTEREST ON EQUITY TO LOAN @9% TOTAL CAPACITY CHARGES ENERGY CHARGES A) O&M EXPENSES 1.5% OF COST OF PROJECT B) RETURN ON EQUITY @ 14% C) INTEREST ON WORKING CAPITAL TOTAL ENERGY CHARGES

NJHEP

AMOUN T 8495.03

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UNIT S Rs/Cr

3185.64 1061.88 4287.03 6950.88 48.66

M.U M.U

6902.22 34.51

M.U M.U

6867.71 824.13

M.U M.U

6043.59

M.U

209.04 215.71 424.75 391.80 152.91 969.46

Rs/Cr

518.20

Rs/Cr

1487.66

Rs/Cr

127.43 356.79 33.98

TOTAL ANNUAL CHARGES SALE RATE AFTER 12% FREE TO GOHP A) CAPACITY CHARGES B)ENERGY CHARGES TOTAL COST OF GENERATION

1500MW

160.41 85.74 246.15 164.66

P/U P/U

Tariff Summary NET TARIFF Rs./KWH 3

TARIFF@Rs/KWH

2.5 2 1.5 1 0.5 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 YEARS

The above area chart shows the net tariff for the next 35 years (starting from the year 2003-04) to be charged from the public for the electricity to be provided to them. The first 10 years of tariff calculation includes major payments such as interest on loan, depreciation (actual & advanced) & other energy charges. The tariff from the 11th year onwards (although declined) shows some escalation due to increase in the cost of project as the time progress. The cost of project increases by 4% compounded annually thereby resulting in increase in the net tariff.

Note: For detail calculation & summary refer annexure: NJHEP Tariff 35 Years

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Application Of Funds Currency Wise Allocation

9%

USD

21%

CAD

38%

D.MARK 6%

I.T.LIRA GBP CHF

6% 7% 1%

0.5%

6%

6%

NOK FRF EURO J.YEN

The given pie chart shows the currency wise allocation of the funds available in different currencies. The major amount was available in U.S.Dollar. Although there is healthy contribution in Canadian Dollar and Deutsche Mark but there is handy contribution in Italian Lira, British Pound, French & Swiss Frank so as to maintain balance while making payment. Since fund was available in different currencies, there arises a difference in the foreign exchange rate. Therefore in order to minimize the hedging cost, the NIGAM has adopted the approach of different currencies.

Notes:  For Abbreviations refer annexure : glossary  For Exchange rate used refer annexure: exchange rates used

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Converted Amount 1000

945

900

Rs/Cr (converted)

800 700

514

600 500 400

223

300

158

200

143

173

150

156

100

11

14

0 USD

CAD

D.MARK I.T.LIRA

GBP

CHF

NOK

FRF

EURO

J.YEN

Currency

The above bar chart displays the converted amount available from different banks in different currencies. The major amount was obtained in United States Dollar ($US) approved by the World Bank and granted by International Bank For Reconstruction & Development (IBRD). Although there was healthy contribution in Deutsche Mark, Canadian Dollar, Italian Lira, British Pound, Swiss & French Frank.

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Cost Revision 9000 8000

COST-Rs/Cr

7000 6000 5000 4000

INITIAL RCE-I RCE-II RCE-III

3000 2000 1000

TOTAL

OFC

IDC

ESTD

INFRASTRUCTURE

ELECTRO.MECH WORKS

GATES & HOISTS

CIVIL WORKS

0

ABSTRACTS

The area chart shows the impact of different cost revisions on initial cost of project made at different period of times. The initial cost of the project was Rs.1678 Cr. at 1989 which increases to Rs.8563Cr. after Revised Cost Estimates III(RCEIII) at 2003. First revision of the cost estimates was done in March 1993. The project took a long time in its completion that it required two more cost estimates revision (RCE II in june 1998 & RCE III in 2002), so as to determine the adequacy of the funds available for the NJHEP project. The civil works component shows successive increase in its cost to completion. The Interest During Construction (IDC) has shown almost twice increase after second Revised Cost Estimates. The reasons for delay in the project have been explained in the ‘problems faced in the project’ section of the report.

Note: For details of the cost revision of each component refer annexure NJHEP revision.

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Findings A) Estimated Cost Vs Actual Cost Civil Cost 1400 1250.5

1200

1277.5

1119 1001.81

1000

894.9

863.6

792 752

Rs./Cr

800 600 400 150.1 138.2

123.6

-75

ESTIMATES

CIVIL COST ABSTRACTS

ACTUAL

Total Cost 5000 4500

4450

4681

4000 3500 Rs./Cr

BUILDING

SALE

POWER HOUSE

70

ADDITIONAL

GATES & HOISTS

HRT 1

HRT II

94.32 39.5

LAND

-200

PRELIMINARY

0

55.7 51.06

DAM

200

3000 2263

2500 2000

1663

1762

1376

1500 1000

497 400

500 0 CIVIL WORKS

ESTD

ELEC-MECH

TOTAL COST PARTICULARS

Note: Refer annexure NJHEP actual & estimated.

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IDC

ESTIMATED ACTUAL

91

B) Variation In Cost ADDITIONALCOSTAFTERRCE-III 250 200 150

COST Rs/Cr

100 50

191.88 94.09

75

64.57

60

60

-50

60.73 14.57

0 RAISINGDAM HEIGHT

DESILITING CHAMBERS

EXTRAITEMS COST DUE TO ACCELERATION INSURANCE DELAY MEASURES PREMIUM

CAT PLAN

ESTDEXP

REDUCTIONIN CIVIL &ESTD -179.3

-100 -150 -200

PARTICULARS

The above chart shows the component wise additional fund requirements of the NJHEP project, which arises after RCE-III was made and was compared with RCE-II. The main reasons for the additional fund requirement were :  Provision of raising the Dam Height.  Increase in the Interest During Construction (IDC) due to variation in the interest on loan(VSL Scheme is used).  Additional safety measures against damages due to floods. The major civil and establishment works were almost completed before RCE-III. The task was completed economically thus resulted in the savings of Rs179.3Cr from the fund allocated for civil and establishment works.

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C) Reasons For Variation 50.00

366.10

30.00

171.75

106.65

-30.00 -40.00

-0.37

TAX/DUTIES

OFC

IDC

EDC

FOREIGN CURRENCY EXG

ESCALATION

DISPUTE REVIEW

UNFORSEEN WORKS

CHANGE IN DESIGN

-20.00

8.67 INADEQUACY

-10.00

217.02

59.05

10.00 0.00

209.05

195.84

20.00

QTY

VARIATION IN %

40.00

212.15 290.23 REASONS FOR VARIATION

The bar chart shows the component wise variation in their respective cost, which results in the provision for additional funds for the NJHEP project to complete after RCE-III. The O-Y axis shows the percentage (%) cost variation of each component, where as the bars depict the amount in which the variation occurs after RCE-III. The components which show negative variation are either completed in less than the allotted or estimated amount or have been over estimated in the RCE-II. The positive variation shows either inadequacy of the funds allocation i.e underestimation of the funds requirements during RCE-II which resulted in the need for the additional funds for the project to complete.

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D) Fiscal Vs Other Factors

600

501.25

500

386.14

338.78

VARIATIONINRs/Cr

400 300 200

21.05

100

0

0 -100

2.61 0

0

0

0

0

-0.784

-25

-107.65

-82.81

-98.91

-200

FISCAL

WORKS

ESTD

T&P

NET.I.TAX

OTHERS

ELECTRO.MECH WORKS

IDC

OFC

SALE

PARTICULARS

The above bar chart depicts the fiscal and other reasons of each component for its variation after RCE-III. At O-Y axis there is variation( both negative and positive) in Rs/Cr. The fiscal reasons include escalation in cost, Fixed cost variation and statutory duties, whereas the others include quantity variation and unforeseen/ additional works. In each component there is unforeseen works and quantity variation i.e under estimation during RCE-II. The Fixed cost and cost escalation (fiscal reasons) shows decline i.e over estimation during RCE-II. The variation due to fiscal reasons in Civil Cost and electromechanical works show decline after Cost Revision III. The IDC has shown escalation at a large scale due to quantity variations.

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Problems/ Challenges In The Implementation Of The Project/(s)  Because of Fragile Geology and steep slope, soil erosion rate is high during snowmelt.  River blockade on account of avalanches and land slides are common because of steep banks.  When these blockades give away, flash floods are caused and silt concentration increases because of increased erosion, dealing with the surge shaft during floods was a great challenge.  The floods effected for three years i.e till 2001 and bridges, new machines were washed away.  Damages of turbines, apparatus, runners and to the other under water parts due to excess (>4000 ppm) silt in the water.

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Remedial Measures  Hard coating on under water parts and procurement of coated spare runners with latest coating.  Raising of Dam height.  Defining the upper limit of silt for power generation.  Construction of additional Dam and diversion tunnel in the main Satluj river to divert excess water up to 1000 cu m.  Weekly flushing of reservoir for minimizing silt entry into power outlets.  Other Safety Measures: ♠ A separate Safety Department is functional at the Project. SJVN had already enrolled as a corporate member of the National Safety Council (NSC) and availed of the pertinent safety related information, manuals and literature from the NSC for educational use and implementation. ♠ Safety related training programmes have also been organized in consultation with NSC. ♠ Awareness about safety aspects within and outside the plant areas of the Project are also imparted by the use of audio-visual methods, including, banners, posters, etc

49 / 68

Benefits Of NJHEP 1500 MW Direct Benefits:  Generation of about 6924 MU of electrical energy annually.  1500 MW valuable peaking power energy starved Northern Grid.  12% free power to Himachal Pradesh and 25% balance at bus bar rate to H.P.  Total Revenue expected Rs1145 Cr annually.

Fiscal Benefits:

NET PROFIT 495.18 500 450 400 350 AMOUNT 300 250 Rs./Cr 200 150 100 50 0

298.42

2004-05

2005-06 YEARS

The net profit from NJHEP is increasing as the project is now serving the nation by providing 1500 MW power to the Northern Grid. The net profit from the project is becoming a good source of funds in the form of retained earnings, thereby reducing the dependence of the firm on the outsiders.

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Developmental Activities:  200 bedded hospital at Rampur.  Planted 1.8 lakh saplings for environmental upgradation.  Extention of educational & Hospital facilities at project area to the local people.  Construction of helipad at Rampur.  Water services (Rs.2.26Cr), health services (Rs.2Cr mobile health van) for the local people.  Cash compensation to the landless families and compensation to build up houses.  Construction of English Medium School (DPS Rampur).  A compensation of Rs.5.45 Cr distributed to the local residents whose houses were destroyed due to blast activities.  SJVNL has spend Rs.2.26 Cr on infrastructural development works in project affected areas, where assistance is provided for community development buildings, school rooms, roads, play grounds etc.

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Limitations Of The Study  The methods of financial analysis and decisions NPV, IRR and profitability Index, although are latest but doesn’t take into consideration the qualitative aspects of the projects.  The cost benefit analysis doesn’t take into account IDC, which has a huge percentage of total cost; therefore selection of the financial institutions can’t be treated as the economical.  The future is uncertain, therefore the proposed benefits from the projects can’t be taken as granted.

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Recommendations  The implementation should be done as quickly as possible, otherwise the delay will ultimately increase the overall cost of project.  The projected tariff should be revised regularly as per cost changes, rather than fixing the cost for the next 35 years.  The safety measures should be monitored at regular interval of the time so as to avoid further increase in the cost of the project.

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Conclusion The Hydro power projects play an important role in reducing the burden on thermal resources of producing the electricity. The two projects; NJHEP and RHEP played an important role in the social and economic upliftment of the people in their vicinity besides generating 1500 mw and 412 mw powers.

The financial activities undertaken such as Cost Revisions, Comparative financial analysis, Capital Budgeting ( NPV, IRR, Profitability Index), Tariff calculation and projection for 35 years helps in determining further financial requirements, economical selection of financial institutions for the funding purpose, Net Tariff/KWH etc respectively. These financial activities also help in forming relationship between time and money. The cost revision at regular interval of time just depicts the increase in cost as the time progress. The project (NJHEP) was delayed in its completion due to floods at regular intervals of time. The huge loss suffered and delay in execution thus resulted in increase in cost of project almost by 9 times (Rs1678Cr to Rs9168Cr).

The short and long terms measures outlined in the paper, when fully implemented, will greatly enhance power generation and minimize damage in all projects.These projects have huge benefits such as infrastructural development works, resettlement and rehabilitation activities undertaken in this project is quite rare in India and are considered as one of the best examples of resettlement implementation in Bank Assisted projects in India.

54 / 68

Bibliography Books Referred: S.No 1 2 3

Title D.P.R (R.H.E.P) D.P.R (N.J.H.E.P) Cost Estimates (I,II,III)

Author SJVNL (Corporate Planning Department) SJVNL (Corporate Planning Department) SJVNL (Corporate Planning Department)

Websites Referred: S.No 1 2 3 4 5 6

Title www.moneycafe.com www.worldbank.org www.pfcindia.com www.sjvn.nic.in www.investopedia.com www.vernimmen.com

Purpose London Inter Bank Offered Rate (LIBOR) Latest Interest Rate (RHEP) PFC Rates for financial evaluation. Financial Position Evaluation Cost Abstracts Terminologies

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Annexure Glossary Abbreviations Used  BNP: International Financial Institution, Japan From BNP  CAD: Canadian Dollar  CHF: Swiss Frank  D.Mark: Deutsche Mark  FRF: French Frank  FSL: Fixed Spread Loan  GBP: Great Britain Pound  I.T.Lira: Italian Lira  IBRD: International Bank For Reconstruction & Development  IDC: Interest During Construction.  IRR.: Internal Rate Of Return  J.Yen: Japan Yen  KFW: KFW, Germary  NJHEP: Nathpa Jhakri Hydro Electric Project.  O&M Exp: Operational & Maintenance Expenses  PFC: Power Finance Corporation  RCE: Revised Cost Estimates  REC: Rural Electrification Corporation  RHEP: Rampur Hydro Electric Project.  USD: United State Dollar  VSL: Variable Spread Loan

Definitions  Agency Fee: A type of internal cost that arises from or must be paid to, an agent acting on behalf of a principal. Agency cost arises because of the core problems such as conflicts of interest between shareholders and management. Agency costs are inevitable with in the organization whenever the principals are not completely in charge, the cost can be used to provide material incentives to the agents.

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 Back Fee: The Premium charged upon the second term or portion of a compound option. The back fee is the fee paid by the owner of a compound option to the owner of the underlying option, when the compound option is exercised.  Bus Bar Cost: The cost per kilo watt to produce electricity, including the cost of capital, debt service, maintenance and fuel. The Power plant bus or bus bar is that point beyond the generator but prior to the voltage transformation point in the plant switch yard.  Commitment fee: A charge by a lender for holding credit available for a borrower. A fee lenders charge their borrowers for unused credit or credit that has been promised at a specified future date. It is different from interest. A lender charges a borrower a commitment fee to keep a line of credit open or to guarantee a loan at a certain futire date even though the credit is not being used at that particular time.  Currency Hedging: It is used both by financial investors to reduce the risk they encounter when investing overseas as well as by non financial actors in the global economy for whom multi-currency activity is a necessary evil.  Frond End Fee: The premium charged upon the initial purchase of a compound option. In other words, the front end fee is what it costs to acquire a compound option. If a compound option is exercised, a second payment must be made.  Guarantee Fees: Fees Charged by mortgage backed securities (MBS) providers to lenders for bundling, servicing, selling and reporting MBS to investors. The main component of the guarantee fee is charged to protect against credit related losses in the mortgage portfolio. This allows the corporations selling the MBS to make a profit, while benefiting both mortgage lenders and borrowers by making groups of mortgages more marketable and liquid. 57 / 68

 Hedge: Making an investment to reduce the risk of adverse price movements in an asset. Normally a hedge consists of taking an offsetting position in a related security, such as future contract.  Hedging Cost: It is the cost incurred to overcome from the risk of fluctuations in the currency rate.  Lender’s IRR: The discounting rate that makes net present value equal to zero is called the IRR or yield to maturity.  Line of credit: An arrangement between a financial institutional (usually a bank) and a customer establishing a maximum loan balance that the bank will permit the borrower to maintain.  Margin Spread: A type of option that derives its value from the difference between the prices of two or ore assets. Spread options can be written on all types of financial products including equities, bonds & currency.  Vertical Spread: An option trading strategy with which a trader makes a simultaneous purchase and sale of two options of the same type that have the same expiration dates but different prices.  Yield to maturity: It is used in investment choice. If the required rate of return is not lower than the IRR of the investment, then investment should be realized.

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RHEP Annexure ANNEXURE: RHEP Tariff 35 YEAR (0)

1

2

3

4

5

6

53.89 85.00 1388.93 1319.48 52.08 49.48 101.57 0.00

53.89 85.00 1250.04 1180.59 46.88 44.27 91.15 0.00

53.89 85.00 1111.14 1041.70 41.67 39.06 80.73 0.00

53.89 85.00 972.25 902.81 36.46 33.86 70.31 0.00

53.89 85.00 833.36 763.91 31.25 28.65 59.90 0.00

53.89 85.00 694.47 625.02 26.04 23.44 49.48 0.00

240.46

230.04

219.62

209.20

198.79

188.37

1984.14 29.76 83.34 7.35

2063.51 30.95 83.34 7.35

2146.05 32.19 83.34 7.35

2231.89 33.48 83.34 7.35

2321.16 34.82 83.34 7.35

2414.01 36.21 83.34 7.35

SUB TOTAL

120.45

121.64

122.88

124.17

125.51

126.90

TOTAL CHARGES NET TARIFF PAISE/KWH COST OF GENERATION CHARGES COST OF GENERATION

360.91 210.31 277.57 142.34

351.68 204.94 268.34 137.61

342.50 199.59 259.16 132.90

333.37 194.27 250.03 128.22

324.30 188.98 240.96 123.56

315.27 183.72 231.93 118.94

PARTICULARS A) ANNUAL CAPACITY CHARGES 1. DEPRECIATION (ACTUAL) 2. DEPRECIATION (ADVANCE) AMOUNT UNPAID DURING FIRST HALF AMOUNT UNPAID DURING SECOND HALF INTEREST ON LOAN @7.5% ON UNPAID AMOUNT DURING FIRST HALF INTEREST ON LOAN @7.5% ON UNPAID AMOUNT DURING SECOND HALF TOTAL INTEREST ON LOAN INTEREST ON EQUITY SUB TOTAL B) ANNUAL ENERGY CHARGES COST OF PROJECT (ANNUAL INCREMENT @4% COMPOUNDED ANNUALY 1. O&M CHARGES @ 1.5% OF COST OF PROJECT 2. RETURN ON EQUITY @14% OF EQUITY 3. INTEREST ON WORKING CAPITAL @ 9%

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7

8

9

10

11

12

13

14

15

16

17

18

19

20

53.89 85.00 555.58 486.13 20.83 18.23 39.06 0.00 177.95

53.89 85.00 416.68 347.24 15.63 13.02 28.65 0.00 167.54

53.89 85.00 277.79 208.35 10.42 7.81 18.23 0.00 157.12

53.89 85.00 138.90 69.45 5.21 2.60 7.81 0.00 146.70

53.89 -85.00

53.89 -85.00

53.89 -85.00

53.89 -85.00

53.89 -85.00

53.89 -85.00

53.89 -85.00

53.89 -85.00

53.89 -85.00

53.89 -85.00

0.00 -31.11

0.00 -31.11

0.00 -31.11

0.00 -31.11

0.00 -31.11

0.00 -31.11

0.00 -31.11

0.00 -31.11

0.00 -31.11

0.00 -31.11

2510.57 37.66 83.34 7.35

2610.99 39.16 83.34 7.35

2715.43 40.73 83.34 7.35

2824.05 42.36 83.34 7.35

2937.01 44.06 83.34 7.35

3054.49 45.82 83.34 7.35

3176.67 47.65 83.34 7.35

3303.74 49.56 83.34 7.35

3435.89 51.54 83.34 7.35

3573.32 53.60 83.34 7.35

3716.26 55.74 83.34 7.35

3864.91 57.97 83.34 7.35

4019.50 60.29 83.34 7.35

4180.28 62.70 83.34 7.35

128.35

129.85

131.42

133.05

134.75

136.51

138.34

140.25

142.23

144.29

146.43

148.66

150.98

153.39

306.30 178.49 222.96 114.34

297.39 173.30 214.05 109.77

288.54 168.14 205.20 105.23

279.75 163.02 196.41 100.72

103.64 60.39 20.30 10.41

105.40 61.42 22.06 11.31

107.23 62.49 23.89 12.25

109.14 63.60 25.80 13.23

111.12 64.75 27.78 14.25

113.18 65.95 29.84 15.30

115.32 67.20 31.98 16.40

117.55 68.50 34.21 17.55

119.87 69.85 36.53 18.73

122.28 71.26 38.94 19.97

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21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

53.89 0.00

53.89 0.00

53.89 0.00

53.89 0.00

53.89 0.00

40.89 0.00

40.89 0.00

40.89 0.00

40.89 0.00

39.75 0.00

35.13 0.00

35.13 0.00

35.13 0.00

35.13 0.00

35.13 0.00

0.00 53.89

0.00 53.89

0.00 53.89

0.00 53.89

0.00 53.89

0.00 40.89

0.00 40.89

0.00 40.89

0.00 40.89

0.00 39.75

0.00 35.13

0.00 35.13

0.00 35.13

0.00 35.13

0.00 35.13

4347.50 65.21 83.34 7.35

4521.39 67.82 83.34 7.35

4702.25 70.53 83.34 7.35

4890.34 73.36 83.34 7.35

5085.95 76.29 83.34 7.35

5289.39 79.34 83.34 7.35

5500.97 82.51 83.34 7.35

5721.01 85.82 83.34 7.35

5949.85 89.25 83.34 7.35

6187.84 92.82 83.34 7.35

6435.35 96.53 83.34 7.35

6692.77 100.39 83.34 7.35

6960.48 104.41 83.34 7.35

7238.90 108.58 83.34 7.35

7528.45 112.93 83.34 7.35

155.90

158.51

161.22

164.05

166.98

170.03

173.20

176.51

179.94

183.51

187.22

191.08

195.10

199.27

203.62

209.79 122.25 126.45 64.85

212.40 123.77 129.06 66.18

215.11 125.35 131.77 67.57

217.94 127.00 134.60 69.02

220.87 128.71 137.53 70.53

210.92 122.91 127.58 65.42

214.09 124.76 130.75 67.05

217.40 126.68 134.06 68.74

220.83 128.68 137.49 70.51

223.26 130.10 139.92 71.75

222.35 129.57 139.01 71.29

226.21 131.82 142.87 73.27

230.23 134.16 146.89 75.33

234.40 136.60 151.06 77.47

238.75 139.13 155.41 79.69

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Annexure: RHEP LIBOR LIBOR stands for "London Inter-Bank Offered Rate." It is based on rates that contributor banks in London offer each other for inter-bank deposits. From a bank's perspective, deposits are simply funds that are loaned to them. So in effect, a LIBOR is a rate at which a fellow London bank can borrow money from other banks. Rate calculations are complex as they incorporate variables such as time, maturity and currency rates. There are hundreds of LIBOR rates reported each month in numerous currencies. Rate Adopted: 5.38%

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History Chart

6 Month LIBOR Mon th 1997 1998 1999 2000 2001 2002 2003 2004

2005

2006

2007

Jan

5.711 5.750 5.036 6.238 5.361 1.989 1.353 1.211 2.958 4.812 5.401 % % % % % % % % 2% 6% 4%

Feb

5.680 5.782 5.168 6.328 4.955 2.068 1.336 1.170 3.149 4.990 5.372 % % % % % % % % 5% 7% 3%

5.961 5.797 5.083 6.530 4.711 2.332 1.262 1.160 3.387 5.119 5.321 Mar % % % % % % % % 6% 6% 2% 6.079 5.868 5.075 6.614 4.231 2.100 1.290 1.368 3.415 5.287 5.358 Apr % % % % % % % % 1% 9% 1% 6.008 5.805 5.193 7.064 3.990 2.090 1.223 1.578 3.531 5.321 5.384 May % % % % % % % 9% 4% 5% 4% 5.938 5.871 5.633 7.014 3.827 1.948 1.124 1.942 3.691 5.638 Jun % % % % % % % 0% 4% 2% 5.829 5.822 5.680 6.887 3.694 1.863 1.151 1.985 3.923 5.547 Jul % % % % % % % 7% 5% 3% 5.860 5.692 5.913 6.831 3.479 1.815 1.210 1.990 4.081 5.450 Aug % % % % % % % 7% 7% 1% 5.852 5.359 5.974 6.761 2.532 1.751 1.180 2.169 4.215 5.370 Sep % % % % % % % 5% 4% 4% 5.805 5.131 6.144 6.721 2.173 1.618 1.221 2.300 4.446 5.389 Oct % % % % % % % 7% 7% 8% 6.039 5.280 6.063 6.678 2.101 1.471 1.230 2.623 4.579 5.349 Nov % % % % % % % 9% 5% 5% 6.008 5.172 6.136 6.208 1.983 1.383 1.219 2.775 4.690 5.365 Dec % % % % % % % 1% 1% 1% Copyright 2007 MoneyCafe.com

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NJHEP Annexure ANNEXURE: NJHEP Tariff 35 Years PARTICULARS A) ANNUAL CAPACITY CHARGES DEPRECIATION ACTUAL DEPRECIATION ADVANCED INTEREST ON LOAN INTEREST ON EQUITY TO LOAN @ 9% TOTAL ANNUAL CHARGES B)ENERGY CHARGES COST OF PROJECT INCREASED @4% COMPOUNDED ANNUALLY O&M EXPENSES @ 1.5% OF COP RETURN ON EQUITY @ 14% INTEREST ON WORKING CAPITAL TOTAL ENERGY CHARGES

YEAR 0

1.04%

TOTAL CHARGES NET TARIFF PAISE/KWH

64 / 68

1

2

3

4

5

6

7

209.04 215.71 391.80 152.91 969.46

209.04 215.71 351.44 152.91 929.10

209.04 215.71 311.08 152.91 888.74

209.04 215.71 270.71 152.91 848.37

209.04 215.71 230.36 152.91 808.02

209.04 215.71 189.97 152.91 767.63

209.04 215.71 149.59 152.91 727.25

8495.03 127.43 356.79 33.98 518.20

8834.83 132.52 356.79 33.98 523.29

9188.23 137.82 356.79 33.98 528.59

9555.76 143.34 356.79 33.98 534.11

9937.99 149.07 356.79 33.98 539.84

10335.51 155.03 356.79 33.98 545.80

10748.93 161.23 356.79 33.98 552.01

1487.66 2.46

1452.39 2.40

1417.33 2.35

1382.48 2.29

1347.86 2.23

1313.43 2.17

1279.26 2.12

8

9

10

11

12

13

14

15

16

17

18

19

20

21

209.04 215.71 109.23 152.91 686.89

209.04 215.71 68.86 152.91 646.52

209.04 215.71 28.49 152.91 606.15

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

11178.88 167.68 356.79 33.98 558.45

11626.04 174.39 356.79 33.98 565.16

12091.08 181.37 356.79 33.98 572.14

12574.72 188.62 356.79 33.98 579.39

13077.71 196.17 356.79 33.98 586.94

13600.82 204.01 356.79 33.98 594.78

14144.85 212.17 356.79 33.98 602.94

14710.65 220.66 356.79 33.98 611.43

15299.07 229.49 356.79 33.98 620.26

15911.04 238.67 356.79 33.98 629.44

16547.48 248.21 356.79 33.98 638.98

17209.38 258.14 356.79 33.98 648.91

17897.75 268.47 356.79 33.98 659.24

18613.66 279.20 356.79 33.98 669.98

1245.34 2.06

1211.68 2.00

1178.29 1.95

855.05 1.41

862.60 1.43

870.44 1.44

878.60 1.45

887.09 1.47

895.92 1.48

905.10 1.50

914.64 1.51

924.57 1.53

934.90 1.55

945.64 1.56

65 / 68

22

23

24

25

26

27

28

29

30

31

32

33

34

35

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

209.04 -86.29

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

152.91 275.66

19358.21 290.37 356.79 33.98 681.14

20132.54 301.99 356.79 33.98 692.76

20937.84 314.07 356.79 33.98 704.84

21775.35 326.63 356.79 33.98 717.40

22646.36 339.70 356.79 33.98 730.47

23552.22 353.28 356.79 33.98 744.05

24494.31 367.41 356.79 33.98 758.19

25474.08 382.11 356.79 33.98 772.88

26493.04 397.40 356.79 33.98 788.17

27552.77 413.29 356.79 33.98 804.06

28654.88 429.82 356.79 33.98 820.59

29801.07 447.02 356.79 33.98 837.79

30993.11 464.90 356.79 33.98 855.67

32232.84 483.49 356.79 33.98 874.26

956.80 1.58

968.42 1.60

980.50 1.62

993.06 1.64

1006.13 1.66

1019.71 1.69

1033.85 1.71

1048.54 1.73

1063.83 1.76

1079.72 1.79

1096.25 1.81

1113.45 1.84

1131.33 1.87

1149.92 1.90

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ANNEXURE: NJHEP REVISION Component wise details after Cost Revisions AMOUNT IN Rs/Cr INITIAL COST VS REVISION PARTICULARS CIVIL WORKS GATES & HOISTS ELECTRO.MECH WORKS INFRASTRUCTURE ESTD IDC OFC TOTAL

INITIAL 786.52 22.83 411.23 140.84 110.59 206.01

RCE-I 2242.13 65.08 808.2 301.51 272.33 648.69

1678.02

4337.94

RCE-II 3679.84 118.43 1291.98 358.09 400.95 1734.79 82.23 7666.31

Exchange Rates Used S.No 1 2 3 4 5 6 7 8 9 10

Currency U.S.Dollar Canadian Dollar Deutsche Mark Italain Lira British Pound Swiss Frank French Frank Japanese Yen Euro Norwegian Komer

INR 46.22 34.64 28.7039 0.029 83.96 36.72 8.5586 0.4273 56.14 6.75

Annexure: NJHEP actual & estimated Actual Vs Estimated Cost and Abstraction 67 / 68

RCE-III 4056.77 146.1 1325.43 394.11 610 1951.81 79.19 8563.41

PARTICULARS DIRECT CHARGES WORKS PRELIMINARY LAND POWER, PLANT CIVIL WORKS DAM HRT-I HRT-II POWER HOUSE GATES & HOISTS BUILDINGS PLANTATION MISCELLANEOUS SPECIAL T&P COMMUNICATION ENV & ECOLOGY LOSSES ON STOCKS MISC. CIVIL WORKS ESTABLISHMENT T&P @1% PRODUCTION IDC

ESTIMATED

ACTUAL

55.74 39.49

51.061 94.32

894.93 1001.81 1250.49 792.41 138.25 70 1.25 83.64 15 10.9 91.7 4.12

1119.044 863.603 1277.467 752.547 150.102 91 1.4 55.713 16.09 15.331 32.876 20.357 123.652 597.979 3.296 1663.75 2263.319

400.95 4.08 1376.52 1762.07

68 / 68