SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS

Feasibility Report for Revamping Of Captive Power & Steam Generation Plant (SGPG) At Hazira

SUBMITTED BY: (Name)Anshul Mangal

MBA-IB (2010-2011) Roll No. : A1802010147

INDUSTRY GUIDE

FACULTY GUIDE

MR.K.C.GUPTA C.M. (F&A)

Ms. Deepmala Soni

AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA

AMITY UNIVERSITY UTTAR PRADESH

0|Page

CERTIFICATE OF ORIGIN
This is to certify that Ms./Mr.___________________, a student of Post Graduate Degree in _____________________, Amity International Business School, Noida has worked in the ____________________, under the able guidance and supervision of Mr./Ms._________________________, designation______________, Company___________________________. The period for which he/ she was on training was for ______weeks, starting from ___________to _____________. This Summer Internship report has the requisite standard for the partial fulfillment the Post Graduate Degree in International Business. To the best of our knowledge no part of this report has been reproduced from any other report and the contents are based on original research.

Signature (Ms. Deepmala Soni)

Signature (Anshul Mangal)

1|Page

ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr. K.C. Gupta, C.M. (F&A), KRIBHCO, for his able guidance, continuous support and cooperation throughout my project, without which the present work would not have been possible. I would also like to thank the entire team of Finance Department (KRIBHCO) especially Mr. S.K. Dewan, for the constant support and help in the successful completion of my project. Also, I am thankful to my faculty guide Ms. Deepmala Soni of my institute, for her continued guidance and invaluable encouragement.

Signature (Anshul Mangal)

2|Page

Table of Contents
EXECUTIVE SUMMARY ...............................................................................................................4 Introduction ................................................................................................................................................... 6 Objectives .........................................................................................................................................6 Industry Profile ................................................................................................................................8 Introduction ............................................................................................................................................... 8 Major companies in Fertilizer Industry ................................................................................................... 13 Growth and Trends in Fertilizer Industry ............................................................................................... 16 Company Profile ............................................................................................................................. 20 KRIBHCO .............................................................................................................................................. 20 Organization Chart .................................................................................................................................. 21 Growth Trend and Financial Performance .............................................................................................. 23 Captive Power Plant ................................................................................................................... 30 Reflections on what has been learned during the training experience ............................................. 38 ANALYSIS ......................................................................................................................................... 49 Capital Budgeting Decisions ................................................................................................................... 49 Net Present Value ................................................................................................................................... 49 Debt-Service Coverage Ratio.................................................................................................................. 51 Conclusion ...................................................................................................................................... 56 Recommendation ............................................................................................................................ 57 Bibliography ................................................................................................................................... 58 Annexure-1 ................................................................................................................................................. 60 Annexure-2 ................................................................................................................................................. 62 Annexure-3 ................................................................................................................................................. 64 Case-study- Solar Photovoltaic Power plant ................................................................................... 73 Synopsis .......................................................................................................................................... 84

3|Page

EXECUTIVE SUMMARY
KRIBHCO (Krishak Bharati Cooperative Ltd.) is a Multi Cooperative Society which manufactures, distributes and does the marketing of the Fertilizers. KRIBHCO has setup a Fertilizer Complex to manufacture Urea, Ammonia & Bio-fertilizers at Hazira in the State of Gujarat, on the bank of river Tapti, 15 Kms from Surat city on Surat Hazira State Highway. Thus, the Captive Power Plant has been installed for KRIBHCO Fertilizer complex. In other words, the consistent fertilizer production needs uninterrupted, reliable Electrical Power & High Pressure Steam for running the different equipments/ Exchangers/ vessels of the Fertilizer complex. So, it basically a co-generation type Thermal Captive Power Plant. Steam Generation Plant- It has three boilers producing high pressure steam. Each boiler is designed to produce 275 t/hr of steam at 105 kg/cm2 absolute & 510 degree C. the high pressure steam is required for steam turbine drives for Electric Power Generation, Pumps, Compressors of Process Pants & for other heat exchangers. Boilers were supplied and commissioned by M/s Foster Wheeler Power Product, UK limited. The project is divided into 2 cases where case has been taken to ensure compatibility of selected models in such a way that augmentation from Case-I to Case-II is ensured smoothly. KRIBHCO Captive Power Plant KRIBHCO has undertaken a major revamp project of Ammonia and Urea plant for capacity enhancement. In this report the financial feasibility of the project is checked through various alternatives in different cases through Capital Budgeting tools such as 1. Pay Back Period 2. Net Present value 3. Debt coverage Ratio 4. Internal Rate of Return As well keeping other factors in mind for Case-1 of project which will be completed Oct2011such as
Alternatives Alternative-1 Alternative-2 Alternative-3 Alternative-4 Alternative-5 Alternative-6 Cost of Project 3950 4300 3950 4300 3950 4300 Capacity of Plant 101Mw 101Mw 26.5Mw 26.5Mw 35Mw 35Mw Auxiliary consumption 1% 1% 0% 0% 0% 0%

4|Page

Introduction

5|Page

Introduction Objectives
Primary Objectives
To study the financial and investment viability of different alternatives for the revamp according to capital budgeting decisions.

Secondary Objective To follow the internship schedule and learn about different areas in finance department :MIS/Budget/FICC Book/Taxation Section Cash section Investment / Trusts Oman Section/ Finance Concurrence Marketing Accounts

6|Page

Industry Profile

7|Page

Industry Profile
Fertilizer can be described as any substance, organic or inorganic, natural or artificial, which supplies one or more of the chemical elements required for plant growth. According to experts sixteen elements are identified as essential elements for plant growth, of which nine are needed in larger quantities and seven elements are required in smaller quantities. Carbon, oxygen and hydrogen are directly supplied by air and water and therefore not treated as nutrients by the fertilizer industry. Historical and Anticipated Annual Variation In Regional Fertilizer Demand around the world between 2007/08 and 2010/11 (Mt nutrients)

Source: Heffer, IFA, June 2010

Introduction
The fertilizer industry presents one of the most energy intensive sectors within the Indian economy and is therefore of particular interest in the context of both local and global environmental discussions. Increases in productivity through the adoption of more efficient and cleaner technologies in the manufacturing sector will be most effective in merging economic, environmental, and social development objectives. A historical examination of productivity growth in Indias industries embedded into a broader analysis of structural composition and policy changes will help identify potential future development strategies that lead towards a more sustainable development path. Issues of productivity growth and patterns of substitution in the fertilizer sector as well as in other energy intensive industries in India have been discussed from various perspectives. Historical estimates vary from indicating an improvement to a decline in the sectors productivity. The variation depends mainly on the time period considered, the source of data, the type of indices and econometric specifications used for reporting productivity growth. Regarding patterns of substitution most analyses focus on inter-fuel substitution possibilities in the context
8|Page

of rising energy demand. Not much research has been conducted on patterns of substitution among the primary and secondary input factors: Capital, labor, energy and materials. However, analyzing the use and substitution possibilities of these factors as well as identifying the main drivers of productivity growth among these and other factors is of special importance for understanding technological and overall development of an industry.

Indian Fertilizer Industry

Indian Fertilizer industry is one of the vital industries for the Indian economy, since it manufacturers a very critical raw material for agriculture. The fertilizer industry especially the ammonia urea plants are energy demanding in their operation. The main objective of the fertilizer industry is to ensure the supply of primary and secondary nutrients in the required quantities. The fertilizer industry in India has performed a vital role in enabling the necessary increase in the use of plant nutrients for achieving the objectives of self sufficiency in food grains production and accelerated and continuous agricultural growth. The fertilizer industry which is one of the most energy intensive sectors is very important from the context of environmental discussions. Due importance to increasing productivity through the implementation of competent and pollution free technologies in the manufacturing sector would be most desirable in combining economic, environmental and social development objectives.

Sector -wise and Nutrient - wise Installed Capacity of Fertilizer Manufacturing Units (as on 31.3.2009) S.No Sector Capacity Percentage Share ( Lakh MT) Nitrogen Phosphatic Nitrogen Phosphatic 34.98 31.69 53.94 120.61 4.33 17.13 35.13 56.59 29 26.27 44.73 100 7.65 30.27 62.08 100

Public 1 Sector Cooperative 2 Sector Private 3 Sector Total

9|Page

Pre Liberalization In India the per hectare consumption of fertilizer in 1950-51 was less than 1/4th of the global average. Production was by and large in the purview of public sector and co operative sector. In 1977 the government introduced the Retention Price Scheme (RPS) with the goals of providing fertilizers to farmers at reasonable rates without affecting the profitability of the manufacturers. Under this policy the government would pay the manufacturers, the difference between the administered price (sale price) and the retention price (cost of production). Over and above the retention price subsidy, the equated freight subsidy was introduced to enable the manufacturers to cover the cost of transportation. Post Liberalization The policy of economic liberalization has its effect on the fertilizer industry too. The government in a move aimed at reducing subsidy, decontrolled all the phosphatic and potassic fertilizers in 1992.This strained the ratio of fertilizer utilization. With this policy of liberalization, the retention pricing scheme (RPS) which had been introduced in 1977, got confined only to urea. Post liberalization, the government strategized a long term fertilizer policy to be completed in three different phase, beginning in 2000-01 and ending in 2006-2007. Phase 1: 2000-01 and 2001-02

Evaluate existing capacity. Increase in urea prices from time to time. Evaluate the possibility of a coal based expertise. Promote joint ventures. Finalize policy on fertilizer pricing and capacity enhancement. Eliminate distribution controls on urea and augment concession scheme to bio fertilizers.

Phase II (2002-03-2003-04)

Finalize decision on feedback. Long term strategy of increased capacity. Decide on extent of protection to local industry. Eliminate MRP and encourage productive investment. Reorganize the association between the industry and farmers. Judicious utilization of fertilizer and greater emphasis on eco friendly fertilizer. Establish Fertilizer Policy Planning Board.

10 | P a g e

Phase III (2004-05-2006-07)

Removal of MRP Define government's role in decontrol setup and with respect to policy relating to LNG.

W T O Implications in India

The restriction on quantity of fertilizers to be imported has been eliminated from April 1, 2001.The proposed plan to establish a tariff rate quota (TRQ) for the import of urea has been deferred. The Government has planned to impose a higher tariff of 150-200 per cent on imported urea in future. This would lead to increase in prices of imported urea and be detrimental to the demand supply gap which is likely augment in future.

Future Trends in India

India's demand for fertilizers in 2007-08 was 26 MM tons, which went up to 29 MM tons in 2008-09 against a supply of 20 MM tons in 2008-2009. The demand for fertilizers in 2011-12 is forecasted to be around 35.5 MM tons. More fertilizer projects are in the pipeline. Gujarat is expected to play a leading role in fertilizer production. Indian companies have penetrated the overseas market, signaling a new phase for the industry. South Asia (essentially Bangladesh, India and Pakistan) will become the worlds leading importing region, with expanding import demand through 2014 for urea and phosphate products (DAP). It will rank as the worlds second largest potash importing region, with imports exceeding 5 Mt K2O in 2014 according to International Fertilizer Industry Association Report.

Indian fertilizer industry has reached international levels of capacity utilization by adopting various strategies for increasing the productions of fertilizers. These include the following:

fertilizer units.

fertilizers, especially urea. resources of raw materials.

11 | P a g e

In order to meet the demand for gas, which is one of the prime requirements for the production of nitrogenous fertilizers, India has entered into joint ventures with foreign companies in a number of countries. Joint ventures have also been established for the supply of phosphoric acid. Indian fertilizer manufacturing companies has joined hands with companies in Senegal, Oman, Jordan, Morocco, Egypt, Tunisia and other countries. It is, therefore, evident that the Indian fertilizer industry has witnessed extensive growth and development in a short span of time. With such extensive growth, it is not surprising that the India ranks among the leading fertilizer manufacturing countries of the world.

12 | P a g e

Major companies in Fertilizer Industry

The majority of the populace of India lives in rural areas and the foremost occupation in the villages is agriculture. Developments pertaining to different industries are being made on a massive scale to change the country's economy from an agrarian one to an industrial one. It is extremely important for the fertilizer industry India to have development in terms of technologically advanced manufacturing process and innovative new-age products. The first fertilizer manufacturing unit in India was set up in the year 1906 at Ranipat in Chennai In the present scenario, there are more than 57 large and 64 medium and small fertilizer production units under the India fertilizer industry. The main products manufactured by the fertilizer industry in India are phosphate based fertilizers, nitrogenous fertilizers, and complex fertilizers. The fertilizer industry in India with its rapid growth is all set to make a long lasting global impression.

13 | P a g e

Fertilizer Association/Company The Fertilizer Association of India Public Sector National Fertilizers Limited Fertilizers and Chemicals Travancore Ltd. Rashtriya Chemicals & Fertilizers Limited Madras Fertilizers Limited Paradeep Phosphates Limited Pyrites, Phosphates & Chemicals Limited Fertilizer Corporation of India Limited Projects & Development India Limited Cooperative Sector Krishak Bharati Cooperative Limited Indian Farmers Fertilizer Cooperative Ltd. Private Sector Gujarat State Fertilizer Company Limited Coromondel Fertilizers Limited Shriram Fertilizers & Chemicals Limited Zuari Industries Limited Southern Petrochemicals Inds. Corpn. Ltd. Mangalore Chemicals & Fertilizers Limited Gujarat Narmada Valley Fertilizers Co. Ltd. Duncans Industries Limited Deepak Fertilizers & Petrochemicals Ltd.

Website Address www.fertindia.com www.nationalfertilizers.com www.fact.co.in www.rcfltd.com www.madrasfert.com www.paradeepphosphates.com www.ppclindia.com www.fertcorpindia.nic.in www.pdil.nic.in

www.KRIBHCO.net www.iffco.nic.in

www.gsfclimited.com www.cflindia.com www.dscl.com www.pdil.nic.in www.spicgroup.com www.mangalorechemicals.com http://gnvfc.guj.nic.in www.duncansfertiliser.com www.deepakgroup.com

14 | P a g e

Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. Godavari Fertilizers & Chemicals Limited Nagarjuna Fertilizers & Chemicals Limited Chambal Fertilizers & Chemicals Limited Tata Chemicals Limited Oswal Chemicals & Fertilizers Limited SSP Units The Dharamsi Morarji Chemical Company Limited

www.indogulf.co.in www.gfcl.com www.nagarjunagroup.com www.zuari-chambal.com www.tata.com www.oswal.org

www.dmcc.com

15 | P a g e

Growth and Trends in Fertilizer Industry

Fertilizer usage around the World (Increase/Decrease) The diagram below shows the increase in fertilizer usage around the world where South Asia shows a considerable increase in usage of fertilizer with 54% increases in usage in India. This shows with fertilizer usage growing faster in developing countries than developed countries.

In the above given figure we can see the supply trend of fertilizer around the world for more than a decade, for the year 2009 it shows an increase in capacity to 250 MT nutrient and production coming down less than 200 Mt nutrient.

16 | P a g e

Future projection of Supply And Demand for Urea (WORLDWIDE) It shows the world urea supply and demand balance, in the coming four years there is an expected increase in supply as well demand though demand is much less than supply with the gap increasing by years.

Percentage Share of Urea's Production in India The below given data shows the share of various company in urea production with IFFCO having the highest share at 20.5% while KRIBHCO maintaining a share of 8.4% for the year 2009-10 accordind to the source FAI.

17 | P a g e

Projected urea production in India Production (million MT/ annum)

40 35 30 25 20.5 20 15 10 5 0 19.9 21 21.6 22.8 22.2 24.1 25.5 24.8 27 26.2 28.5 27.7 30.1 29.3 31 31.8 33.6 32.7 35.5 34.6 36.5

23.5

2023-24

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

2022-23

2024-25

2025-26

2026-27

2027-28

2028-29

2029-30

SOURCE: Green Rating Project 2009; Centre for Science and Environment, New Delhi

The above given figure shows the expected or projected increase in urea production for next thirty years which would also mean an opportunity for KRIBHCO to increase its market share from 8.4%.

Energy Consumption and greenhouse gas emissions Company

Production (MT) Specific energy Consumption (GJ/MT urea) Feedstock mix(Natural gasNaphthaFuel oil) Energy consumption associated with BAT(GJ/MT) Deviation from BAT Specific emissions (MT CO2/ MT urea)

Tata Chemicals Nagarjuna Fertilizers and Chemical Ltd. IFFCO KRIBHCO RCF CFCL GNFC NFL Vijaipur I

1,070,308 1,354,490

21.6 23.5

96-4-0 74-26-0

21 21.8

3 8

2030-31

0.48 0.67

3,963,000 1,714,502 1,832,334 2,000,038 670,290 899,679

24.7 24.8 27.4 22.6 24.8 24.3

93-7-0 100-0-0 75-25-0 100-0-0 29-0-71 100-0-0

21.1 20.9 21.7 20.9 28.3 20.9

17 19 26 8 15 16

0.64 0.54 0.74 0.49 1.36 0.52

SOURCE: Green Rating Project 2009; Centre for Science and Environment, New Delhi

18 | P a g e

Company Profile (KRIBHCO)

19 | P a g e

Company Profile

Location: A-10, Sector-01, Noida, Uttar Pradesh

KRIBHCO: Krishak Bharati Cooperative Ltd is a Cooperative Society registered under MultiState Cooperative Society Act 2002. It has more than 6500 cooperative societies as its members. KRIBHCO has setup a Fertilizer Complex to manufacture Urea, Ammonia & city on Surat Hazira State Highway. Late Smt. Indira Gandhi, former Prime Minister of India laid the Foundation Stone on February 5, 1982. Hazira Fertilizer Complex has 2 Streams of Ammonia Plant and 4 Streams of Urea Plant. Annual re-assessed capacity for Urea and Ammonia is 1.729 million MT and 1.003 million MT respectively, the total Project cost was Rs. 890 crores as against the estimated cost of Rs. 957 crores. This shows a saving of Rs. 67 crores (approximately 7%) in Capital Cost of the Project. The trial production commenced from November, 1985 and within a very short time of 3 months, the commercial production commenced from March 01, 1986. Since then, it has excelled in performance in all areas of its operations. Bio-

fertilizers at Hazira in the State of Gujarat, on the bank of river Tapti, 15 Kms from Surat

20 | P a g e

Bio-fertilizer plant of 100 MT per year capacity was commissioned at Hazira in August, 1995. KRIBHCO has also completed the installation of an expansion of the Bio-Fertilizer plant with an additional capacity of 150 MT and the same was commissioned in December, 1998. Ten Seed Processing Plants are also in operation in various states.

State Marketing Offices (14)

Service Centres (60)

Area Offices (36)

Kribhco

Seed production unit (12)

Port Offices (2)

Organization Chart

Shri B.D.SINHA (Managing Director) Shri S.Jaggia (Operations Director) Shri R. Kamra (Finance Director) Shri N. Sambasiva Rao (Marketing Director) Shri A.K.GUPTA (Chief Vigilance Officer) Shri C.P. Singh (Executive Director Technical) Shri Amar Prasad (Executive Director HR)

21 | P a g e

Mission
To act as a catalyst to agricultural and rural development by selecting, financing and managing projects that are both socially desirable and commercially profitable. Vision We want to be a world class organization that represents the farmer community and maximizes returns to them through specialization in agricultural inputs and products and other diversified businesses that maximize stakeholder value. OBJECTIVES To increase the urea installed capacity, maintaining its market share. To ensure optimum utilisation of existing plant and machinery. To diversify into other core sectors like power, LNG terminal / port, chemicals etc. Market share of different sectors in the company market share COOPERATIVE 2886807500 Govt. of India 1015000000 NCDC 50000000

market share
1% 26% 73% COOPERATIVE Govt. of India NCDC

In the above figure, it shows the share of different societies and sector in the KRIBHCO with decrease Government share to 26% and increase in cooperative societies share to 73%, these

22 | P a g e

societies belongs from different states and region in country. The decrease in government share is 26% from 48% before

Growth Trend and Financial Performance

Paid up capital: Rs. 390.66 Crore Gross earning: Rs. 2863.66 Crore Sales
Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Sales (Rs. In Crore) 686.23 766.08 800.05 979.31 924.22 1,257.30 1,343.97 1,385.62 1,512.40 1,637.39

Sales(Rs. In Crore)
1800 1600 1400 1200 1000 800 600 400 200 0 1,512.40 1,343.97 979.31 766.08 686.23 800.05 1,257.30 924.22 Sales(Rs. In 1,385.62 1,637.39

According to the 30th annual report (2009-10) the sales has increased significantly from 686.23 Crore in 2000-2001 to 1,637.39 Crore in 2009-2010. This sale includes urea, ammonia, DAP and MOP etc.

23 | P a g e

Profit
Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 PBT(Profit Before Tax) 210.1 248.33 40.01 219.51 185.83 280.2 231.53 272.14 269.34 252.77 PAT(Profit After Tax) 138.1 187.33 34.01 152.7 140.59 192.45 193.24 209.2 250.13 228.17

300 250 200 150 100 50 0 40.01 34.01 210.1 138.1 248.33 187.33 219.51 185.83 152.7

280.2

272.14 269.34 231.53 250.13 209.2 252.77 228.17

192.45 140.59

193.24

PBT(Profit Before Tax) PAT(Profit After Tax)

The Profit before Tax & Profit after Tax reflects the profit performance of the company before and after the relevant taxes is paid. The main product urea is a controlled commodity by the government. Thus, sometimes the subsidy availed does not meet with companys cost of production inclusive of profit margin, company earns most of its profit from sale of other commodities such as DAP & MOP.

24 | P a g e

Net Worth Net worth is the amount by which assets exceed liabilities. Through the years the reserves in the company has increased with decrease in equity of the company. The reserves are used to finance the revamp project as well as investing in bank deposits etc.
YEAR 31.03.2007 31.03.2008 31.03.2009 31.03.2010 Equity 396.11 396.08 390.74 390.67 Reserves 1891.41 1982.43 2158.68 2306.46 Net Worth 2287.52 2378.51 2549.42 2697.13

Net Worth
3000 2500 2000 1500 1000 500 0 Equity Reserves Net Worth 31.03.2007 396.11 1891.41 2287.52 31.03.2008 396.08 1982.43 2378.51 31.03.2009 390.74 2158.68 2549.42 31.03.2010 390.67 2306.46 2697.13

25 | P a g e

Sources of Income
Sources Of Income Sales Concession/Remuneration from Govt. of India Other Revenue Rs. In Crore 1,637.38 959.69 266.59

Rs. In Crore
9% Sales

34%

57%

Concession/Remun eration from Govt. of India Other Revenue

Projected Production and Sales of Ammonia and Urea (in KRIBHCO)

Production (Rs. In lakhs) Ammonia Urea

YEAR 20091110053 1780105 83901 1800242 10(actual) 1068400 1753000 55400 1753000 2010-11 1197300 2015000 32600 2015000 2011-12 1297000 2195000 28000 2195000 2012-13 1361850 2304750 29415 2304750 2013-14 In the above given table, we can see that ammonia and urea production and sales in Rupees. The ammonia production is increasing with sales decreasing, this is because the ammonia is used to also produce urea and through table we can see the urea sales is increasing with increase in its production. Thus, the additional ammonia produced is used in production of urea which leads to decrease in sale of ammonia

Sales (Rs. In lakhs) Ammonia Urea

26 | P a g e

Production Performance
UREA & AMMONIA: During the year 2008-09 KRIBHCO produced 17.43 lakh MT of Urea (8.02 lakh MT in terms of nitrogen N) achieving capacity utilization of 100.8 % and 10.85 lakh MT of Ammonia achieving capacity utilization of 108.1%.During the year 2009-10 up to November 2009, the Society has produced 13.36 LMT of Urea (6.14 lakh MT in terms of nitrogen N) achieving capacity utilization of 103 %. The expected production for the year 2009- 10 would be 17.82 lakh MT of Urea (8.20 lakh Mt in terms of nutrient N) of capacity utilization of 103%. ARGON GAS: During the year 2008-09 KRIBHCO produced 4245 thousand NM3 of Argon gas. During the year 2009-10 up to November 2009, Society has produced 1726 thousand NM3 of Argon. BIO-FERTILIZERS: During the year 2008-09 KRIBHCO produced 865 MT of Bio-fertilizers. During the year 200910 up to November 2009, Society has produced 679 MT of Bio-fertilizer.

Sales Performance:
TOTAL UREA : In the year 2008-09, the Society sold 37.76 lakh MT of total Urea. This is the highest total annual sales of Urea achieved by KRIBHCO since inception. During the year 2009-10 upto November 2009, Society sold 23.59 lakh MT of total Urea. OWN UREA : In the year 2008-09 the Society has sold 18.11 lakh MT of own Urea. During the year 2009-10 upto November 2009, Society has sold 11.23 lakh MT of own Urea. OMIFCO GRANULAR UREA: During the year 2008-09 Society sold 10.77 lakh MT OMIFCO Granular Urea. During the year 2009-10 upto November 2009, Society has sold 6.27 lakh MT of OMIFCO Granular Urea. KSFL UREA: During the year 2008-09 Society has sold 8.88 lakh MT of KSFL Urea. During the year 2009-10 upto November 2009, Society has sold 6.09 lakh MT of KSFL Urea. AMMONIA SALE : During the year 2008-09 the Society has sold 0.79 lakh MT of surplus Ammonia.
27 | P a g e

During the year 2009-10 upto November 2009, Society has sold 0.57 lakh MT of Ammonia. ARGON SALE: During the year 2008-09 the Society has sold 4215 thousand NM3 of Argon. During the year 2009-10 up to November 2009, Society has sold 1692 thousand NM3 of Argon. BIO-FERTILIZERS SALE: During the year 2008-09 the sale of Bio-fertilizer was 867MT. KRIBHCO has conducted several promotional programmes on use and benefits of Bio-fertilizers. During the year 2009-10 up to November 2009, Society has sold 655 MT of Bio-fertilizer.

SWOT ANALYSIS OF KRIBHCO SWOT Analysis is a method for analyzing a business, its resources and its environment. SWOT is commonly used as part of strategic planning and looks at: Internal Strengths Internal Weakness Opportunities in external environment Threats in the external environment

STRENGTH-: Manpower that is experienced, professionally qualified. Harmonizes industrial relation. Proven technology and good product quality. Consistently good performance and the availability of substantial reserve. Wide spread marketing infrastructure. A good corporate image.

WEAKNESSES-: Delay in Diversification.

28 | P a g e

OPPORTUNITIES-: Growth prospect bright for the immediate future. Liberal economic policies. Scope for joint venture in abroad. Prospects for diversifications. Decontrol may lead to an increase in profits.

THREATS-: Inadequate availability of raw material like natural gas. Development of substitute product. Environment and pollution control standard may become more stringent

29 | P a g e

Captive Power Plant

Electric power generation is a state controlled subject. Of late, however, government has liberalized captive power generation for the user industry for bridging the demand-supply gap. The fact that private industries use captive power answers the question of financial viability. With the opening access policy has also made third party power sale quite lucrative. The CERC amended Section-9 letting the Captive power plants using 25% of its power to sell electricity through open access system (without requiring license). Earlier CPP consumed 75% power and sell residual power to grid only after obtaining special clearance from the government. KRIBHCO is a National level Cooperative- Society which is engaged in manufacturing and marketing of urea since 1986. The company operates a mega fertilizer complex at Hazira in Gujarat, India. The fertilizer complex comprised of two streams of Ammonia plants of 1520MT/day capacity each and four Urea streams of 1310 MT/day each. The complex also comprised of related offsite facilities, captive Steam and power generation (SGPG) plant, silos for storing urea, Railway siding etc. and is self sufficient in terms of power and other utilities. The captive power plant is a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such cooperative society or association (Electricity Act, 2003).The captive power and steam generation plant (SGPG) of Hazira complex comprised of three high pressure boilers and two Steam turbo Generators installed with plant producing 24MW and 260 MT/h (65MW equivalent) HP steam for utilizing 0.7 MMSCMD gas. Captive SGPG plant comprises of 3 HP Boilers of 275MT/h MCR capacity each 2 steam Turbo Generators of 15 MW each

Requirement in Fertilizer Complex HP steam requirement (by Urea Plant) = 260 MT/h Complex power requirement (including argon) = 24 MW

30 | P a g e

The requirement was met by running 2 boilers at part loads to produce HP steam of about 390MT/h which were divided about 260 MT/h for urea plant for process use and 130 MT/h to produce 24MW of power to meet power plant internal consumption. The company decided for the Revamp of Ammonia and Urea plant to enhance the production capacity, which is to be completed by Oct 2011. During the review meeting with MD on subject matter GM (P), Sh. S. Jaggia put forward 2 scenarios on completion the revamp Project of Ammonia and Urea Plant, which are as following: A. Surplus steam of 70 MT/h will be produced in ammonia plant, leading steam production requirement from SGPG plant to 190 MT/h from present 260 MT/h. Thus SGPG plant shall be configured to provide 190 MT/h steam and 27 MW power to be utilized by the fertilizer complex after revamp. B. Alternatively, if a total power of 42 MW is made available to the fertilizer complex after revamp( by April 2011 which was later extended to Oct 2011) a total of 150 MT/h steam can be made available from ammonia plant by changing some of the complex from present scheme of steam driven to motor drive system. In this case the HP steam generation requirement from SGPG plant shall become only to 110 MT/h. thus, after revamp project implementation requirement of power and steam to be generated from SGPG plant including 3 MW requirement for Jetty, ICDs, Argon plant etc. shall be HP steam= 11 MT/h Complex power requirement = 45 MW The MD decided that alternative (B) shall be more feasible and adopted with work starting immediately to meet the deadline of the Revamp of Ammonia & Urea plant so that enhanced power requirement is met for the fertilizer complex of 45 MW along with most optimum configuration of power and steam generation to produce maximum power for third party sale. Thus, the Revamp of Captive Power plant was decided. In order to meet the enhanced power requirement and to optimize the use of present available gas for generation of surplus power for third party sale, it was proposed to revamp the power plants by installing new Gas Turbines and HRSG as being used in modern power plants for considerable enhancement of efficiency

31 | P a g e

According to recent data, the Ammonia and Urea Plant shall be completed by Oct 2011. On completion of this revamp project, the requirement of high pressure steam and power of the complex shall be changed to 174 MT/h and 37 MW respectively. Consultants Work It was found prudent to divide the project into two phases for the consultancy work. Phase -1.Accordingly, ITB was floated for selection of Engineering Consultant to carry out the configuration study, recommend the most optimum configuration and carry out Techno- Economic Study for augmentation the Captive Power Plant, power evacuation & Grid connectivity and to work out options for sale of power for maximum returns keeping in view of various policies of third party power sale from Captive power plants.. Phase-2.The next phase shall be appoint a Consultant for providing services of an Owners Engineer with responsible of preparation of DPR, specifications and tender document for various EPC packages, issue of tenders, Bid evaluation and recommendations for placing orders. In the last phase, a project Management Consultant (PMC) shall be appointed who will provide services related to all aspects of project Execution. This phase shall highest commercial implication. For the phase-1 limited tender was issued and bids were called. The plant configuration suggested by the consultant is based on two scenarios. The Case-I is based under regulatory compliance by a CPP which permits a CPP to sell power to third party only up to 49% of total generation will be limited to 72 MW with 37 MW in-house use and 35 MW for third party sale. The gas required in this case will be about 0.7 MMSCMD. In this case one of the existing Service Boiler shall also be utilized for generating steam to augment the steam generation from new HRSG for meeting the shortfall for in-house requirement. In Case-II, the maximum potential of power generation for third party sale has been considered, utilizing total available gas of 1.0 MMSCMD. In this case the total power generation shall be about 142MW with surplus available for sale of 105 MW. In case total in-house steam shall be generated in new HRSG(S) to be installed. The existing boiler shall become redundant in this case.

32 | P a g e

Case

POLICY

TOTAL POWER MW 72 123-142

Case -I Case-II

@49% of capacity of CPP @75% OF Capacity of CPP

CAPTIVE Requirement MW 37 37

Sale of surplus power 35 86-105

Care has been taken to ensure compatibility of selected models in such a way that augmentation from case 1 to case 2 is ensured smoothly In this project we are going to study and analyze the Case-I. This case was divided into three cases with two alternative each from which the analysis takes place. These three cases were differentiated on the basis of sale of surplus power. The CASE- 1 defined on the Standalone Absolute Basis i.e. total 101 MW power is produced, with 1% internal consumption and rest being exported/ transferred to the KRIBHCO. The CASE-2 was defined on the Net Increment Basis i.e. the increment over what KRIBHCO is presently producing (24 MW power and 260 MT//h steam)and what is to be produced (72 MW power and 174 MT/h) which comes out to be 26.5 MW, out of which 50% is sold to KRIBHCO itself. The CASE-3 was defined on the Net Export Basis total power generated is 72 MW out of which 37 MW is for internal consumption and rest 35 MW is to be sold with nil variable cost. This case was preferred by the company and consultant as the best option because of its technical feasibility and as later analyzed physical feasibility providing the firm optimum solution. Thus, it is further analyzed with two alternative available 5 and 6 in the Analysis chapter.

33 | P a g e

Cost Analysis of Alternatives

KRIBHCO has undertaken a major revamp project of Ammonia & Urea plants for capacity enhancement. The project is under implementation and shall be completed by Oct 2011. KRIBHCO commissioned a consultant to carry out the configuration study, recommend the most optimum configuration and carry out the configuration study, recommend the most optimum configuration and carry out the PMC services for the Captive Power Plant. On completion of this revamp project, 150MT/h surplus HP Steam shall be generated in the Ammonia plant, which will be exported to Urea plants. Under this scenario HP steam requirement from the SGPG plant shall reduce to 125MT/hr from present value of 260 MT/hr. The power requirement of the complex however shall increase to 45MW from present requirement of 24MW.Thus the SGPG plant, after revamp of fertilizer plant needs to produce 125MT/h HP steam and 45MW power in-house consumption. It has been understood this project is a capacity augmentation of existing Power plant. EIL has undertaken configuration study for Captive Power Plant for Case-1 and Case-2 under which alternate scenarios has been considered for each case. Cost estimates for all scenarios have been worked out. The basic assumptions made for working out the cost estimate are as under: Cost estimate is based on present day price level as of April-2010. No provision has been made for any future exchange rate variation. It has been assumed that the project would be implemented on HYBRID mode of execution BASIS OF COST ESTIMATE The basis of cost estimate is as under:Cost estimate has been prepared based on best option among various options/ configuration available. These have been supplemented with in-house engineering inputs for cost estimation. Cost estimate is based on cost information available from in-house cost database which is a repository for storing cost data from ongoing jobs. Inhouse cost data has been has been analyzed and adopted for estimation after incorporating specific project conditions. Cost data has been updated to prevailing price level using relevant economic values.

34 | P a g e

Plant & Machinery Supply cost The cost estimates have been prepared based on specification and in-house cost data for similar type of equipment. Sourcing of equipment and material from foreign or indigenous suppliers has been made as per in-house information on previous executed projects. Cost estimate for Gas Turbine Generator (GTG) is based on budgetary quote from various vendors and HRSG has been estimated based on in-house awarded cost data for similar items, updated for required specifications and time escalations. Some of the major equipment like Utility Boiler, STG, De-aerator, and BFW Pumps etc. already exist in the plant. No provision for capacity augmentation for these equipments has been provided Cost for supply of Piping & Electrical items are provided based on in-house generated MTO. Cost for supply of Instrumentation (including DCS) has been made on factor basis. Cost provision for spares has been made on factor basis as per in-house norms. Lump sum cost provisions have been made for Chemicals.

Construction Costs Costs provision towards erection of equipment, piping, electrical, and instruments, Civil & structural works including Piling works, insulation & painting work have been made on fator basis. Statutory & Indirect Costs Statutory & Indirect Costs 4.0% of FOB cost of imported equipment Ocean Freight 20.94% of CIF cost of imported equipment(5% Basic Customs Duty Custom Duty + 10.30% CVD+ 3% Education Cess + 4% Additional duty) 0.5% of FOB cost of imported equipment Port Handling 2.0% of FOB cost of imported equipment and ex-works cost of Inland freight indigenously sourced equipment 10.30% of ex-works cost of indigenously sourced equipment Excise Duty 2% of ex-works cost of indigenously sourced equipment including Central Sales tax excise duty 4% on subcontracted works Work Contract Tax 4.12% on subcontracted works Service Tax Octroi / State Entry Not Considered Tax 0.5% of total cost Insurance

35 | P a g e

Design and Engineer Fees Cost provision for Design & Engineering is based on factor basis. Contingency Provision for contingency has been made @ 3%. EPCC Mark-UP EPCC mark-up has been excluded from the cost estimate. Exclusions Following costs have been excluded from the cost estimate:Exchange rate variations Road & buildings Construction Site Requirement Start-Up and Commissioning Expenses Forward Escalation

36 | P a g e

Reflections on what has been learned during the training experience

37 | P a g e

Reflections on what has been learned during the training experience Finance Department
The finance department is divided into different section:-

MIS/BUDGET/FICC Book/ Taxation Section Cash Section Investments/Trusts Oman Section/ Finance Concurrence Marketing Accounts

As a trainee we had to follow a schedule in which we had spend a considerable time in each section learning about different areas in finance department of the company. It was full of wonderful learning experience. The employees were knowledgeable about their field as well patient and considerate towards the trainees. In this chapter the given section of the company will be discussed of what they do, why they do and when they do.

I.

MIS/Budget/FICC

I studied capital budget and revenue budget first in this section. While reading these files I was asked to follow certain guidelines such as The file has to be read from back to front. The files had photocopy of each of its documents as well some of it in hindi.

The capital budget is a plan for raising large and long term sums for investments in plant & machinery, over a period greater than the period considered under an operating budget. Capital budget is the most crucial financial decision of firm. It relates to the section of assets or investment proposal or course of action whose benefits are likely to be available in future over the lifetime of the project. There is no income or loss in this budget. There are 4 types of scheme for which capital budget is made under 3 head- Head office, CMO AND Plant . These are as follows:38 | P a g e

New Scheme On -going Scheme Dropped Scheme Complete Scheme

Revenue budget is related to production cost related to the Hazira Plant situated at Surat, Gujarat. The expenses of Head Office like remuneration, wages, salary, day to day expense and similar expenses of market division. a) procurement budget : Naphtha, Bags, Chemicals, Catalyst, Steel & cement b) revenue budget: raw material, packing/bagging cost, power, water, salaries & wages, freight, handling & transportation etc c) advance budget : conveyance, house building, and computer advances

Management Information System (MIS) involve three primary resources: technology, information, and people. The information gathers information through various sources and uses the information for different purposes. MIS provides information support to decision making in the organization. The collection of information is done through various sources such as Central Marketing offices, Head offices, & other sites are processed and sent further to the entire needy destinations. The MIS reports are prepared on the following basis

Monthly quarterly annually

MIS performs following function for F&A department To generate reports (financial statements or inventory status reports). To answer what-if questions asked by management. To support decision making. FICC- FERTILIZER INDUSTRY COORDINATION COMMITTEE In this I learned about different schemes by and subsidies provided by the FICC to the company for the production urea. The urea is a main product and basic need for the farmers; it is controlled commodity i.e. the price is regulated by the government. It is
39 | P a g e

important to know that cost of production including the profit margin is higher than regulated price. Thus, the government provides the subsidy to the company according to the classification of the group company belongs to. The urea is a controlled product by Govt. of India. Suppose, Selling Price = Rs. 5,310 Cost of production= Rs. 8, 200 (inclusive 12% profit) Subsidy (Rs. 2890)

Government Policy for Urea manufacturing Units:New Pricing Scheme (NPS)- Policy of stage III was effective from 1-10-2006 to 31-03-2010 but this policy is still continuing and the new policy is under pipeline. In NPS III policy there are six groups classified on the basis of input. There are thirty Urea manufacturing units which is divided into six groups for calculate average cost. Groups are classified on the basis of utilization level. The Transportation cost of gas will be calculate and paid separately. FICC department calculate quarterly cost of production which include comprise variable cost and fixed cost. Cost of production change due to change in variable cost and fixed cost. Both cost change on the basis of change in policy from time to time. This report has to be calculated on quarterly basis which is called escalation claim. Escalation claim is submitted quarterly basis for approval to government. Government approved only those cost which they feel justified. Difference between the approved cost and selling price is paid by government to KRIBHCO which is known as subsidy. The KRIBHCO suffer heavy losses on urea production because of under recoveries in various account. But overall KRIBHCO is earning profits from other activities. Policy related to Surplus AmmoniaAmmonia used as raw material to produce urea. KRIBHCO is generating surplus ammonia due to technical reasons and this surplus ammonia is used for sale purpose. In this respect

40 | P a g e

government has notified a policy where the profit on sale of surplus ammonia is shared by the government with the unit in the relation of 35:65 respectively.

II.

Cash Section

In the cash section first I studied the file containing bank transaction of the cash available in the company. In this I learned how the company operates on daily basis and handles general or operating expenses. I also learned how the online banking made it easier for employees to carry out the business transactions overseas or region from the comfortable office atmosphere. As some of the transactions included payment and receipt of cash, the buyers credit and the overdraft, I learned how the company dealt with them with such efficiency of employee and the comfort of online transactions. In this department the administration expenses are also dealt with, I read around three work order contracts. One of them about the staffing of security guards containing work compensation plan, provident fund and pension plan available from them, other contract was M/s Otis about the lifts to be installed in the head office. In the latter contact the labors working for the installation were required to be compensated as well other plans such as pension funds to be taken care by the company responsible for the installation, this clause is in most of the work order contracts with an exception of security guards contract. I also studied the agreement for the installation of SAP which be there for employees use by next year. The department also handles the payroll of employees. This is carried out with the assistance of existing information system which contains the entire general and job information of employees. The company has divided the employees in different grades with different compensation plan enjoying different kinds of benefits such as medi-claim, loans and advances. The salary is calculated on basic salary+ Dearness Allowances where kind of tax is levied.

41 | P a g e

III.

Book/ Taxation Section

In this section of the finance department the annual report is prepared and taxes are taken care off. Here, I learned that how taxes is a cost to company and how the company deals with this cost. The taxes incurred both in head office and plant site are calculated here. Taxes

Direct Tax (Income Tax)

Indirect Tax (VAT, Sales Tax, Excise Duty Tax etc.)

KRIBHCO pays 30% corporate tax in addition with 3% education cess which in total works out to be 30.9% with no surcharge included as the KRIBHCO is a cooperative society. The company no longer pays Fringe Benefit Tax which came up in year 2003 & was abolished by the year 2010. The difference between KRIBHCOs calculated tax liability and the amount calculated by Income Tax Department as tax liability is adjusted as Deferred Tax Liability. In KRIBHCO, there is software called Asset Expert Management System developed by Senesys technologies with help of which we calculate depreciation of all the fixed assets of KRIBHCO. The company uses straight line method of depreciation for all assets below Rs. 5000 the 100% depreciation is calculated, keeping the value of asset as Re.1 in first year only. While for assets above Rs.5000, regulation related to depreciation as per companies act is levied on. In the section, the insurance of all fixed asset of the value above Rs. 5000 is done. Insurance o f every employee and cash in hand in F&A of Rs.1, 50,000 is also being done. The insurance of lift is also done and there are other kinds of contract being handled by HR department.

42 | P a g e

IV.

Investments/Trusts

In KRIBHCO the investment can be done by on the basis of CRISIL rating agency. KRIBHCO did the investment with three types of bank Cooperative Banks, Private Banks Public Banks. In case company has surplus of money the company always give preference to the cooperative banks because interest is exempted from the tax in cooperatives banks. KRIBHCO also make a QCS (Quotation Comparative statement) on daily basis. KRIBHCO takes 43 banks for comparative statement. Main role to play by the investment section is to maintain the records of short term investment. In case any investment is mature as on date they think that which bank is good for reinvestment to increase interest income. In any case company suffers from any deficit they apply for loan. Selection criteria of bank- 1. Physical location (nearby) 2. Facilities KRIBHCO use RTGS (real time gross statement) to transfer big fund, to save the time. There are three types of trust under KRIBHCO as follows: KRIBHCO Employee provident fund Trust. KRIBHCO Employee Benevolent Fund Trust. KRIBHCO Employee Gratuity Fund Trust. Benevolent fund trust is two types Death Insurance.

After Retirement Medical Insurance.

Constitution of FundThe trust can be created without executing any registered trust deed and shall be irrevocable with the constant of all the beneficiaries and no money belongs to the fund is hand off to the Board of trustees shall recoverable by the KRIBHCO.

43 | P a g e

Control of the FundThe Board of trustees shall have control of the fund and shall delegated power of trustees or official of KRIBHCO for performance of various functions on its behalf under the rule. The Board shall be also decided all disputes which may arise under the rule. The obligation of KRIBHCO and the decision of the majority for the trustees shall be binding on all the parties concerned. Membership of Fund Every employee in KRIBHCO and other excluded employee shall be entitled and required to become a member of the fund from the date joining.
Every Employee and becoming a member of KRIBHCO shall remain and continued to be a

member. He shall be drawing his Provident Fund.

Contribution of Provident FundEvery member is entitled and required to contribute 12% of his Basic Pay &DA .Such Contribution of each member will be deducted by KRIBHCO for the member pay and will be paid to the fund within 15 days of making such deduction. The collected fund of the Provident Fund, KRIBHCO has to invest this fund to earn interest income. The interest income is exempted from the tax. Employees Pension Scheme 1995 Eligibility- All the subscribers of Provident Fund contributing to the employee family pension and all new entrants to the EPF scheme 1985 from 16/11/1995 onwards automatically become eligible to join the pension scheme.

Contribution by the members pay. KRIBHCO shall be entitled to deduct from the emolument of the member. No subscription shall be recovered from employee when he will absent from the duty. Every member shall subscribe to one fund every month, a sum equal to 12% of his basic

44 | P a g e

Employer contribution to the fundThe contribution shall be calculate don the basis of basic pay and dearness allowance and retaining allowance it actually drawn on the whole month basis whether paid on weekly, fortnightly or monthly basis. Objective of the Scheme The main objective is to provide social welfare medical assistance to the employees. The employees who minimum five year continuous service in KRIBHCO are eligible for this scheme. Contribution KRIBHCO employees shall be required to pay contribution of Rs.50/- per month up to the date of retirement. KRIBHCO will contribute Rs.50/- per month to the employees for the Medical claim

scheme.

GratuityCalculations of Gratuity are as follows-Wages* No. of years of services*15 days/26

V.

Oman Section

Omifco Fertilizers Complex, Sur Industrial Estate, Oman Project Completion Production Capacity Project Cost Lump Sum Turnkey Contract Equipment Supply Process Automation 2005 Urea-1.65mt/yr, Ammoina-250000t/yr $968m Snamprogetti/Technip-Coflexip Larson & Toubro Yokogawa Blue Star

Oman Indian Fertilizers Company (Omifco), an India-Oman Joint venture company, invested $968m to build 1.65mt/yr of urea and 35,0000t/yr of surplus ammonia capacity. The facilities are located at The Sur Industrial Estates, 150 Km South of Muscat, Oman. The foundation stonelaying ceremony took place on 1 October 2003.The entire complex was commissioned and
45 | P a g e

production started in may 2005. The fertilisers complex was officially inaugurated in January 2006.

OMIFCO financingShareholders in Omifco are Oman Oil Company-50%, Krishak Bharati Cooperative Limited (KRIBHCO)-25%, and Indian Farmers Fertilisers Cooperative (IFFCO)-25%. The plant is operated and maintained by Omifco. The funding requirements were met with $320m of equity and $648m of debt. The project financing was also supplemented by Italian and French credit export agencies. The lenders included BNP Paribas, ANZ Investment Bank and Arab Banking Corporation. TechnologyThe ammonia output is based on Haldor Topsoe technology. The unit also includes a CO2 removal technology licensed by Giammarco Vetrocoke. The urea units use Snamprogetti technology. Critical equipmentFabrication and supply of all critical equipment such as ammonia converters, reformed gas waste heat boiler systems, secondary reformers, ammonia separators and CO2 absorbers and regenerators. Off take agreementsA urea off-take agreement was established between the Government of India and Omifco. At the same time an ammonia off-take agreement was set up between Omifco , Indian Farmers Fertilizers Cooperative (IFFCO)and KRIBHCO. The project location is at Muscat. India's Government believes that the urea off take agreement will provide the country with a reliable and long term source of urea. The KRIBHCO and IFFCO maintain a 50-50% share of production

46 | P a g e

with GOI in Oman Project. The sales fee of US $3.5 per MT is still maintained by GOI even if the share of production is not available. Supply of feedstockA gas supply agreement was established between the Government of the Sultanate of Oman and Omifco. Under the terms of the agreement the Government of Oman will supply gas to the project for 15 years at a fixed price for the first ten years and then at a pre-agreed escalation for the remaining years. The gas is sourced from the Oman LNG plant located in Sur, Oman.

47 | P a g e

ANALYSIS

48 | P a g e

ANALYSIS Capital Budgeting Decisions

Alternatives
Cost of Project(in Rs. Million Lakhs )

Sale Of Surplus 35Mw 35Mw

Equity IRR*

Auxiliary consumption 0% 0%
PBP* IRR* Sale of SURPLUS

Alternative-5 Alternative-6
Case Alternatives

3950 4300

Case 3

Alternative-5 Alternative-6

Cost of NPV* Project(in Rs. Million Lakhs ) 3950 7125.13 4300 7070.57

81% 75%

3.4 3.8

43.87% 39.95% 35Mw

Case

Alternatives

Case 3

Alternative-5 Alternative-6

Sale of Surplus Power 35Mw

Minimum DSCR 2.63 2.46

Maximum DSCR 3.97 3.66

Average DSCR 3.15 2.92

*(Check Annexure-1 for the calculation)

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.

NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. Formula:

49 | P a g e

In this project Ms Excel is used as a tool for calculating NPV for all six alternatives at 12% interest. Following are the cases and calculated NPV. Alternatives Cost of Project Case 3 Alternative-5 Alternative-6 3950 4300 7125.13 7070.57

Case

NPV

If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative. Net Present Value of case is most favorable at Rs.7125.13 (alternatrive-5). Thus, the company should go for Case-3. It is calculated for 25 years

Internal Rate of Return

The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first. Case Alternatives IRR 43.87% 39.95%

Case 3 Alternative-5 Alternative-6

I have used Ms- Excel to calculate Internal Rate of Interest (IRR) at 10%. Assuming all other factors are equal among the various cases, the case with the highest IRR would probably be considered the best and undertaken first. In this case at alternative-5 with 43.87% this is quite higher than other alternatives. It is calculated for 25 years.

Equity IRR
Equity IRR assumes the use debt for the project, so the inflows are the cash flows required minus any debt that was raised for the project. The outflows are cash flows from the project minus any

50 | P a g e

interest and debt repayments. Hence, equity IRR is essentially the "leveraged" version of project IRR. Case Alternatives Equity IRR 81% 75%

Case 3 Alternative-5 Alternative-6

I have calculated Equity IRR with help of Ms-Excel at 10%. Equity IRR is the cash flow return to equity shareholders after debt repayments. In the given cases, the case at alternative-5 with 81% equity IRR. It is calculated for over 25 years.

Payback Period
The length of time required to recover the cost of an investment.

Calculated as:

Case

Alternatives

PBP (in years)

Case3

Alternative-5 Alternative-6

3.4 3.8

The short length of time is preferable. In this I calculated payback period within. As we can see the case (alternate-5) at 3.4 years is the shortest time in which initial investment can be recovered.

Debt-Service Coverage Ratio

In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments. In general, it is calculated by:

51 | P a g e

Case Case

Alternatives Alternative-5 Alternative-6

Sale of Surplus 35Mw

Minimum DSCR 2.63 2.46

Maximum DSCR 3.97 3.66

Average DSCR 3.15 2.92

A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. According to the calculated DSCR with help of Ms- Excel Case-3 alternative 5 provides the highest DSCR at minimum DSCR at 2.63 and maximum DSCR at 3.97. It is calculated for around 25 years.

Sensitivity Analysis
A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bond's price. Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key prediction(s).
Case Alternatives Cost of NPV Project(in Rs. Million Lakhs ) 3950 7125.13 4300 7070.57 Equity IRR PBP IRR

Case 3

Alternative-5 Alternative-6

81% 75%

3.4 3.8

43.87% 39.95%

Sensitivity analysis- 10% increase in cost of project Alternatives NPV IRR Alternate-5 7,063.56 39.49% Alternate-6 7,003.54 35.86%

PBP 3.8 yrs 4.2 yrs

Sensitivity analysis- 10% decrease in cost of project Alternatives NPV IRR Alternate-5 7,186.70 49.16% Alternate-6 7,137.60 44.86%

PBP 3.1 yrs 3.4 yrs

52 | P a g e

The analysis is done for Case-I for which EIL is responsible to prepare feasibility report as well provide with necessary solution. The Captive Power Plant has been installed for KRIBHCO Fertilizer complex. In other words, the consistent fertilizer production needs uninterrupted, reliable Electrical Power & High Pressure Steam for running the different equipments/ Exchangers/ vessels of the Fertilizer complex. So, it basically a co-generation Thermal Captive Power Plant. KRIBHCO commissioned Engineers India Limited, New Delhi vide their LOI dated 25 th Feb 2010 to carry out the configuration study, recommend the most optimum configuration and to prepare a Techno- Economic for Feasibility Report for augmenting the existing Captive Power plant. According to financial statements prepared and investment appraisal done by the company itself. The company is taking three cases with different capacity of plant divided into standalone absolute basis, net increment of power basis, and net export of power basis. In these cases, two alternatives are provided to each with different cost of project. Through the assistance of capital budgeting decisions and its tools the company prepares its investment decision as we look through different cases. All the three cases were analyzed, with later selecting Case-3 for analysis to get the optimum solution.
Case Alternatives Cost of Capacity Project(in of Plant Rs. Million Lakhs ) 3950 35Mw 4300

Case-Net export basis

Alternative-5 Alternative-6

If you look up at the write-up provided by company in annexure-2 as well as at the capital budgeting decisions youll understand the company chose the Case- Net export basis at Case-I of the project which is to be completed by Oct-2011. In the net export basis comprises of concept where we look at it from only power point of view. Total power generated is 72 MW out of which 37 is our own internal requirement. Thus 35 MW is being sold with nil variable cost. The projected IRR, NPV and payback period is quite impressive. The annexure- 3 contains all the financial statements related to alternative 5 which seems optimum solution.
Alternatives

Case

Case 3

Alternative-5 Alternative-6

Cost of NPV Project(in Rs. Million Lakhs ) 3950 7125.13 4300 7070.57

Equity IRR

PBP

IRR

Sale of surplus power

81% 75%

3.4 3.8

43.87% 39.95%

35Mw

53 | P a g e

As well due the technical configuration where in Case-1(standalone absolute basis) utilizes it 1% for internal consumption and rest being exported/ transferred to KRIBHCO, whereas in Case-2 (Net Increment basis) in which 50% of differential will be transferred to KRIBHCO and balance 50% being sold outside with nil variable cost and in Case-3 from total power generated 72MW, the 35MW is sold with nil variable cost after meeting internal requirement of 37 MW. This is also one of the factors contributing in such vast difference in the NPV, IRR as well other tools.

54 | P a g e

Conclusion & Recommendations

55 | P a g e

Conclusion
KRIBHCO is a National level Cooperative- Society which is engaged in manufacturing and marketing of urea since 1986. The company operates a mega fertilizer complex at Hazira in Gujarat, India. It includes two of two streams of Ammonia plants of 1520MT/day capacity each and four Urea streams of 1310 MT/day each. The company decided on major revamp of the Ammonia and urea plant to enhance the production. Due to enhancement of the production it was found out extra power would be needed. Hence, the company decided the revamp of captive power plant. Captive power plants are those power plants which use power generated for its own consumption or that of the owner of plant to maintain a continuous supply. The company has divided the whole Captive Power Plant (CPP) Revamp project in two phases. This report was study of the first phase which is yet not completed. The Phase I includes Engineers India Ltd which had to carry out the configuration study, recommend the most optimum configuration and carry out Techno- Economic Study for augmentation the Captive Power Plant, power evacuation & Grid connectivity and to work out options for sale of power for maximum returns keeping in view of various policies of third party power sale from Captive power plants. EIL has carried out financial feasibility study with techno feasibility through investment appraisal and capital budgeting decisions. According to investment appraisal, the case-3 (NET EXPORT Basis) alternat-5 is the most feasible solution with surplus power of 35 MW for sale and 37 MW for internal Consumption. Also the electricity board has liberalized captive power generation for the user industry for bridging the demand-supply gap. With the opening access policy it has also made third party power sale quite lucrative. The CERC amended Section-9 letting the Captive power plants using 25% of its power to sell electricity through open access system (without requiring license). This benefits the company in long way as according to analysis the chosen case-3 and alternate-5 follows the net export basis approach which allows company to sell surplus power.

56 | P a g e

Recommendation
Through the years companys reserves have increased in comparison of decrease in equity. This increase can be due to the investment in the revamp of urea & ammonia plant to enhance production. The company is also investing in bank deposits at which its earning certain rate of return. - The company can also give a thought to Solar PV Power plants as through the years the efficiency in cost reduction and power generation has increased also such project shows the company in great light over social responsibility. The company with changing global environment is stepping up the global ladder. In Oman, the company is in joint venture (OMIFCO) for urea production. The company also attended the BRICS which recognizes cooperative societies among the member countries Brazil, Russian Federation, India, China and South Africa which benefits company in sharing knowledge, technology and information. The company can use this opportunity to invest in different economies and utilize resources of said economies. The company can use Modified Internal Rate of Return. The modified internal rate of return takes into account the rate of investment of the cash flows that are not negative. It makes precise assumptions about these when functioning in the context of corporate finance. The profitability index is a technique of capital budgeting. This holds the relationship between the investment and a proposed project's payoff. The profitability index is also sometimes called as value investment ratio or profit investment ratio. Profitability index is used to rank various projects. With other capital budgeting techniques it can help in guiding the decision making process.

57 | P a g e

Bibliography
Financial Management I.M. Pandey http://www.faidelhi.org/ 30th Annual report KRIBHCO Annual Report (2009-2010) Ministry of Chemical and Fertilizers Feasibility Report for Revamping Of Captive Power & Steam Generation Plant (SGPG) At Hazira Engineers India Ltd.

58 | P a g e

Annexure

59 | P a g e

Annexure-1
Alternate-5
Description 0 1 2 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10 Year-11 Year-12 Year-13 Year-14 Year-15 Year-16 Year-17 Year-18 Year-19 Year-20 Year-21 Year-22 Year-23 Year-24 Year-25 Year-26 Equity IRR -1,185.00 902.6 947.6 996.7 1,049.30 1,104.90 1,163.20 1,223.80 1,286.50 1,350.90 1,417.00 1,761.00 2,088.10 2,277.80 2,307.10 2,323.90 2,348.60 2,381.00 2,413.30 2,445.50 2,477.60 2,509.60 2,541.40 2,573.10 2,604.70 2,636.20 395 Equity NPV Cash flow for IRR and NPV ANNEXURE-1-I

48%

4,190.45

MiINR

60 | P a g e

Alternate-6
Description 0 1 2 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10 Year-11 Year-12 Year-13 Year-14 Year-15 Year-16 Year-17 Year-18 Year-19 Year-20 Year-21 Year-22 Year-23 Year-24 Year-25 Year-26 Equity IRR 74% -1,290.00 879.7 925.7 976.2 1,030.40 1,088.00 1,148.50 1,211.50 1,276.70 1,344.00 1,413.00 1,784.50 2,137.60 2,341.30 2,370.30 2,385.30 2,409.70 2,442.10 2,474.40 2,506.60 2,538.70 2,570.70 2,602.50 2,634.20 2,665.80 2,697.30 430 Equity NPV 7,070.57 MiINR Cashflow for IRR and NPV -

ANNEXURE-1-II

61 | P a g e

Annexure-2
Financial Analysis on Incremental Basis (over Present operating conditions) Case-1 On Standalone absolute basis (101 MW) (72MW + 116/4 MW) Total in terms of Power =101 MW This 101 MW is generated through new setup of GT and HRSG Case-2 Net increment of power Basis (26.5 MW) Present case i) Power = 24 Mw ii) Steam = 260 MT/h Proposed i) Power =72 Mw ii) Steam = 174MT/h Differentials Power = 72-24 = 48 Mw Steam = 174-260 = 86 MT/h (equivalent to 21.5 MW Power) Net in terms of Power (48-21.5): 26.5 MW Out of this 50% will be transferred to KRIBHCO @ Rs. 5.80/Unit and balance 50% exported to grid @ Rs.4.50/unit Case-3 Net Export of Power Basis (35MW) Total Generated: Internal Consumption: 72MW 37MW

Net Power Available: 35 MW Power export after meeting internal requirement Going in for Captive Power Plant (CPP) project makes complete sense from whatever point of view, whether we look at it from:a) Standalone absolute basis i.e. total 101MW power is produced, with 1% internal consumption and rest being exported/transferred to KRIBHCO. The project IRR of __% and payback period of __years with capital cost of Rs____ Crore. The project IRR of ___% and payback period of ___years with capital cost of Rs____ Crore.
62 | P a g e

b) Net increment of power basis i.e. the increment over what we were presently producing (24 MW power and 260 MT/h steam) and what we are proposed to produce (72 MW power and 174 MT/h) which comes out to be 26.5 MW, out of which 50 % is sold to KRIBHCO and rest being sold outside and with nil variable cost. The project IRR of __% and Payback period __years with capital cost of Rs___ Crore. The Project IRR of __% and payback period of __years with capital cost of Rs____ Crore. c) Net export of power basis i.e. we look at it from only power point of view. Total power generated is 72 MW out of which 37 is our own internal requirement. Thus 35 MW is being sold with nil variable cost. The Project IRR OF __% and payback period of __years with capital cost of Rs___ Crore.

63 | P a g e

Annexure-3 (Case 5)
ANNEXURE-3-I

Profitability Analysis
Description Unit Year-1 2012-13 35 8760 91% 279.006 0 0.00 279.01 2.39 6.60 Year-2 2012-14 35 8760 91% 279.006 0 0.00 279.01 2.29 6.60 Year-3 2012-15 35 8760 91% 279.006 0 0.00 279.01 2.20 6.60

ALTERNATIVE-I (incremental)
Year-4 2012-16 35 8760 91% 279.006 0 0.00 279.01 2.11 6.60 Year-5 2012-17 35 8760 91% 279.006 0 0.00 279.01 2.02 6.60 Year-6 2012-18 35 8760 91% 279.006 0 0.00 279.01 1.92 6.60 Year-7 2012-19 35 8760 91% 279.006 0 0.00 279.01 1.83 6.60 Year-8 2012-20 35 8760 91% 279.006 0 0.00 279.01 1.74 6.60 Year-9 2012-21 35 8760 91% 279.006 0 0.00 279.01 1.65 6.60 Year-10 2012-22 35 8760 91% 279.006 0 0.00 279.01 1.56 6.60

Plant Capacity No. Of Hours in Year Plant Load Factor Total Generation Auxiliary Consumption (of Generation) Auxiliary Consumption Net Delivered Energy Cost Of Electricity Sale Price (export) Revenue From Generation Net Revenue From Sale of Electricity Cost Of Generation Operating Expenses Fuel Cost (Gas) Operation & Maintenance Expenses

MW Hours % Mi Units % Mi.Units Mi. Units INR/kWh r INR

Mi. INR

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

Mi. INR Mi. INR

57.89

59.63

61.42

63.26

65.16

67.11

69.12

71.20

73.33

75.53

Gross Profit (PBDIT)

Mi. INR

1,783.55

1,781.81

1,780.02

1,778.18

1,776.28

1,774.33

1,772.32

1,770.24

1,768.11

1,765.91

Depreciation

Mi. INR

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

Profit Before Interest & Tax(PBIT) Interest Interest On Indian Debt

Mi. INR

1,475.45

1,473.71

1,471.92

1,470.08

1,468.18

1,466.23

1,464.22

1,462.14

1,460.01

1,457.81

Mi. INR

64 | P a g e

Profitability Analysis
Description Unit Year-1 276.50 23.38 Year-2 248.85 23.39 Year-3 221.20 23.40

ALTERNATIVE-I (incremental)
Year-4 193.55 23.41 Year-5 165.90 23.43 Year-6 138.25 23.44 Year-7 110.60 23.45 Year-8 82.95 23.46 Year-9 55.30 23.48 Year-10 27.65 23.49

Interest On working Capital

Mi. INR

PBT Tax Profit After Tax Cummulative Profit After Tax Cash Profit

Mi. INR Mi. INR Mi.INR MiINR Mi. INR

1,175.57 304.61 870.96 870.96 1,179.06

1,201.47 343.20 858.28 1,729.24 1,166.38

1,227.32 377.32 850.01 2,579.24 1,158.11

1,253.12 407.63 845.49 3,424.73 1,153.59

1,278.86 434.71 844.15 4,268.88 1,152.25

1,304.54 459.03 845.51 5,114.39 1,153.61

1,330.17 481.01 849.16 5,963.54 1,157.26

1,355.73 500.98 854.75 6,818.29 1,162.85

1,381.23 519.25 861.98 7,680.27 1,170.08 10,453.1 7

1,406.67 536.07 870.60 8,550.87 1,178.70

Commulative Cash Profit

3950

1,179.06

2,345.44

3,503.54

4,657.13

5,809.38

6,962.99

8,120.24

9,283.09

PROJECT IRR (10 YEARS) PAYBACK PERIOD

Tax Calculation PBT Previous Loss Net Taxable Income MiINR MiINR MiINR

43.9% 3.5
1,175.57 1,175.57 1,201.47 1,201.47 1,227.32 1,227.32 1,253.12 1,253.12 1,278.86 1,278.86 1,304.54 1,304.54 1,330.17 1,330.17 1,355.73 1,355.73 1,381.23 1,381.23 1,406.67 1,406.67

MAT Corporate Tax Computation Book Depreciation Cumulative Depreciation

MiINR

239.75

245.03

250.30

255.56

260.81

266.05

271.27

276.49

281.69

286.88

MiINR MiINR

308.10 308.10

308.10 616.20

308.10 924.30

308.10 1,232.40

308.10 1,540.50

308.10 1,848.60

308.10 2,156.70

308.10 2,464.80

308.10 2,772.90

308.10 3,081.00

Profit Before Tax

MiINR

1,175.57

1,201.47

1,227.32

1,253.12

1,278.86

1,304.54

1,330.17

1,355.73

1,381.23

1,406.67

65 | P a g e

Profitability Analysis
Description Depreciatin as per Companies Act Profit Before Tax & Depreciation Depreciation as per IT Act Profit/Loss as per IT Cumulative Profit/ Loss MiINR TAX Applicability as per Tax Holidays Applicable tax MiINR MiINR 896.17 100.00% 304.61 1,905.87 100.00% 343.20 3,015.95 100.00% 377.32 Unit MiINR MiINR MiINR MiINR Year-1 308.10 1,483.67 587.50 896.17 Year-2 308.10 1,509.57 499.88 1,009.70 Year-3 308.10 1,535.42 425.34 1,110.08 308.10

ALTERNATIVE-I (incremental)
Year-4 Year-5 308.10 1,586.96 308.02 1,278.94 Year-6 308.10 1,612.64 262.14 1,350.50 Year-7 308.10 1,638.27 223.12 1,415.15 Year-8 308.10 1,663.83 189.92 1,473.91 Year-9 308.10 1,689.33 161.67 1,527.66 11,261.3 8 100.00% 519.25 Year-10 308.10 1,714.77 137.63 1,577.13 12,838.5 1 100.00% 536.07

1,561.22 361.95 1,199.27

4,215.22 100.00% 407.63

5,494.16 100.00% 434.71

6,844.65 100.00% 459.03

8,259.80 100.00% 481.01

9,733.71 100.00% 500.98

Applicable Tax Liability

MiINR

304.61

343.20

377.32

407.63

434.71

459.03

481.01

500.98

519.25

536.07

66 | P a g e

Balance Sheet
Description Liabilities Promoters Equity Reserve & Surplus Term Loan -Indian -Foreign Bank Borrwing for Working Capital Dividend Dividend Tax Total Liabilities Assets Gross Block Less: Depreciation Net Block Curent Assets Cash & Bank Balance Preliminary Expenses 3,950.00 3,950.00 3,950.00 308.10 3,641.90 233.80 902.56 3,641.90 308.10 3,333.80 233.91 947.60 3,333.80 308.10 3,025.70 234.02 996.68 3,025.70 308.10 2,717.60 234.13 1,049.26 2,717.60 308.10 2,409.50 234.25 1,104.89 2,409.50 308.10 2,101.40 234.37 1,163.17 2,101.40 308.10 1,793.30 234.50 1,223.79 1,793.30 308.10 1,485.20 234.63 1,286.45 3,950.00 2,765.00 1,185.00 1,185.00 26.13 1,185.00 51.88 1,185.00 77.38 1,185.00 102.74 1,185.00 128.07 1,185.00 153.43 1,185.00 178.91 1,185.00 204.55 End of Construction Period Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8

ANNEXURE-3-II

Year9

Year10

1,185.00 230.41

1,185.00 256.53

2,488.50 233.80 722.11 122.72 4,778.26

2,212.00 233.91 711.59 120.94 4,515.31

1,935.50 234.02 704.74 119.77 4,256.40

1,659.00 234.13 700.99 119.13 4,001.00

1,382.50 234.25 699.88 118.94 3,748.64

1,106.00 234.37 701.01 119.14 3,498.95

829.50 234.50 704.03 119.65 3,251.59

553.00 234.63 708.67 120.44 3,006.28

276.50 234.76 714.66 121.46 2,762.79

234.90 721.81 122.67 2,520.91

1,485.20 308.10 1,177.10 234.76 1,350.93 -

1,177.10 308.10 869.00 234.90 1,417.01 -

Total Assets

3,950.00

4,778.26

4,515.31

4,256.40

4,001.00

3,748.64

3,498.95

3,251.59

3,006.28

2,762.79

2,520.91

67 | P a g e

Working Capital Calculation

ANNEXURE-3-III Description Unit Mi. INR Mi. INR Mi. INR Mi. INR Value 2 months 1 month 1 month Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year10

Receivable Gas Stock O & M Expenses

306.91 4.82

306.91 4.97

306.91 5.12

306.91 5.27

306.91 5.43

306.91 5.59

306.91 5.76

306.91 5.93

306.91 6.11

306.91 6.29

Total Working Capital

311.7

311.9

312.0

312.2

312.3

312.5

312.7

312.8

313.0

313.2

Margin Money Required Increase/(Decrease) in Margin Money

MiINR MiINR Mi. INR Mi. INR Mi. INR

77.93 77.93

77.97 0.04

78.01 0.04

78.04 0.04

78.08 0.04

78.12 0.04

78.17 0.04

78.21 0.04

78.25 0.04

78.30 0.05

Working Capital Loan Increase/(Decrease) in working capital loan

233.80 233.80

233.91 0.11

234.02 0.11

234.13 0.12

234.25 0.12

234.37 0.12

234.50 0.13

234.63 0.13

234.76 0.13

234.90 0.14

Interest On working capital

23.38

23.39

23.40

23.41

23.43

23.44

23.45

23.46

23.48

23.49

68 | P a g e

Plant Data
Description Unit Year-1 2012-13 Hours in Year Cost of INR per US$ Plant Capacity Auxiliary Consumptions PLF Station Heat Rate Specific Consumption Electricity Generated Auxiliary Consumptions Net Delivered Energy Tariff Fuel Cost Fuel Consumption - Natural Gas Hours INR MW % % Kcal/Kwhr NM3/Kwhr Mi Unit/Annum Mi Unit/Annum Mi Unit/Annum INR/unit INR/mKCal Mi. NM3 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 2.39 2765.59 0.00 Year-2 2012-14 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 2.29 2765.59 0.00 Year-3 2012-15 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 2.20 2765.59 0.00 Year-4 2012-16 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 2.11 2765.59 0.00 Year-5 201217 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 2.02 2765.59 0.00 Year-6 201218 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 1.92 2765.59 0.00 Year-7 2012-19 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 1.83 2765.59 0.00 Year-8 201220 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 1.74 2765.59 0.00 ANNEXURE-3-IV YearYear-9 10 2012201221 22 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 1.65 2765.59 0.00 8760 45.00 35 0 91% 0 0.000 279.006 0.00 279.01 1.56 2765.59 0.00

69 | P a g e

ANNEXURE-3-V

Tariff Calculation
Description Plant Capacity Auxiliary Consumptions PLF Total Electricity Generated Auxiliary Consumptions Net Delivered Energy Unit MW % % Mi Unit/Annum Mi Unit/Annum Mi Unit/Annum Year-1 35 0 91.32 279.01 0.00 279.01 Year-2 35 0 91.32 279.01 0.00 279.01 Year-3 35 0 91.32 279.01 0.00 279.01 Year-4 35 0 91.32 279.01 0.00 279.01 Year-5 35 0 91.32 279.01 0.00 279.01 Year-6 35 0 91.32 279.01 0.00 279.01 Year-7 35 0 91.32 279.01 0.00 279.01 Year-8 35 0 91.32 279.01 0.00 279.01 Year-9 35 0 91.32 279.01 0.00 279.01 Year-10 35 0 91.32 279.01 0.00 279.01

Fixed Cost
O&M Expenses Interest on Indian Debt Depreciation Interest on Working Capital Return on Equity Taxes Total Fixed Cost Mi INR Mi.INR Mi INR Mi INR Mi INR MiINR Mi INR 57.89 276.50 308.10 23.38 665.87 59.63 248.85 308.10 23.39 639.97 61.42 221.20 308.10 23.40 614.12 63.26 193.55 308.10 23.41 588.32 65.16 165.90 308.10 23.43 562.58 67.11 138.25 308.10 23.44 536.90 69.12 110.60 308.10 23.45 511.27 71.20 82.95 308.10 23.46 485.71 73.33 55.30 308.10 23.48 460.21 75.53 27.65 308.10 23.49 434.77

Fixed Charges

Rs./kWhr

2.39

2.29

2.20

2.11

2.02

1.92

1.83

1.74

1.65

1.56

Variable Cost
Fuel Cost - Natural Gas Total Fuel(Variable) Cost Mi. INR Mi INR -

70 | P a g e

Tariff Calculation
Description Unit Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10

Variable Charges

Rs. / Kwhr

Total Cost

MiINR

665.9

640.0

614.1

588.3

562.6

536.9

511.3

485.7

460.2

434.8

Total Tariff Levelised Total Tariff for 25 Years Levelised Total Tariff for 12 Years Levelised Fuel Cost for 25 years Leveised Fuel Cost for 12 Years Levelised Fixed Cost for 25 years Levelised Fixed Cost for 12 years

Rs. / kWhr Rs/ kWh Rs/ kWh Rs/ kWh Rs/ kWh Rs/ kWh Rs/ kWh

2.39

2.29

2.20

2.11

2.02

1.92

1.83

1.74

1.65

1.56

1.66 1.98 1.66 1.98

71 | P a g e

CASE STUDY

72 | P a g e

Case-study- Solar Photovoltaic Power plant

The captive power plant is a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such cooperative society or association (Electricity Act, 2003). Industrial sector is one of the largest consumers of electrical energy in India. However, a number of industries are now increasingly relying on their own generation (captive and cogeneration) rather than on grid supply, primarily for the following reasons: Non-availability of adequate grid supply Poor quality and reliability of grid supply High tariff as a result of heavy cross-subsidization

Frequent unavailability of power from the grid is a critical problem faced by Indian industries, and with the Indian industry growing at a hectic pace, this deficit is even more harmful. According to a recent study carried out by the Manufacturers' Association for Information Technology (MAIT) and US-based power distribution solutions provider Emerson Network Power, India Inc lost Rs 43,205 crores (about $10 billion) in 2008-09 due to power outages. The revenue loss due to power failure grew at an average of 11.9% in the past five years. Many large companies have resorted to having their own captive power plants. At present, there are about 2,759 industrial units using captive generation power plants (both renewable and nonrenewable) with a capacity of 1 MW and above. Many smaller businesses and commercial institutions rely to a large extent on diesel for backup power. To the latter and to some extent to the former, solar PV based power production could be an attractive option. This report will help you set up a captive solar PV power plant for your business or company SWOT Analysis for the Indian Solar PV Industry Strengths A high growth industry with significant future potential. Sunlight is available in sufficient quantities in many regions. Technology proven, with low operation and maintenance costs, and scalable. Availability of soft loans and government incentives for growth and expansion

73 | P a g e

Weakness Solar PV systems have high capital costs. Owing to high capital costs, the business needs external incentives to be economically feasible, thus increasing dependence on governmental policies. The capital intensive nature of the business might favor larger businesses over smaller ones. The distributed and intermittent nature of solar energy makes it difficult for utilities to rely on solar PV for their base load.

Threats Technology innovation is high, so there are risks of obsolescence. Off-peak seasons reduce cash flow. Industry is new, so finding skilled workforce could be a problem.

Opportunities Opportunities exist all along the solar PV business value chain, not just for power plants. Entirely new opportunities could open up as the there is high innovation in technology and the technology could prove to be a disruptive business, especially with reductions in costs in future.

74 | P a g e

Status of Solar PV Technology in India

About 40 companies are actively engaged in manufacturing solar cells and panels, and many more companies produce end products such as solar lanterns, street lamps etc. The production in the country during 2009-10 is estimated to be about 230 MWp of solar cells and 325 MWp of PV modules.3 Nearly 90% of the solar modules manufactured in India use crystalline silicon C-Si technology, while only 10% of the solar modules are manufactured using thin film technology.

Trends in Production of Solar PV Cells and Modules (MWp) in India

As of end 2009, the cumulative production of solar PV cells in India has been about 800 MW. Of this total, only a small portion has been used in applications within India, while the rest have been exported. Of the total amount of solar cells cumulatively used in India, the following are the areas in which they have been applied Application of Solar PV Cells (MW) in India Sector wise

75 | P a g e

Future Potential Most experts agree that the solar PV market worldwide as well as in India will continue accelerating significantly for the foreseeable future. The global PV market is estimated to be 2.5 times its current size by 2014, based on a slowest growth scenario, while a production led fast growth scenario would see annual industry revenues approach $100 billion by 2014. Currently, the Indian Solar PV manufacturing sector is export-led, and is much larger than the country's total installed capacity. The manufacturing capacity of solar PV modules is further expected to grow at a rate of 20 to 25 percent up to 2015 from about 1000 MWp as of 2009, according to Frost & Sullivan. In addition, the National Solar Missions target to achieve 20 GW by 2022, of which 50% will be solar PV, and its plan to produce modules and cells domestically increases the need for significant increases in module production capacity. Many states in India are also devising their own, ambitious policies for solar PV power generation, with Gujarat being the most prominent among the states. Thus, there exists a huge manufacturing opportunity not only for the export market but also to fulfill the NSM and state targets. Similarly, Indias off-grid market has huge potential, especially in the areas such as rural electrification, power irrigation pump sets, back-up power generation for the expanding network of cellular towers across the country, captive power generation, urban applications and highway lighting etc. In addition to the government's initiatives such as Feed-in-Tariffs/Generation Based Incentive (GBI) as part of the NSM, the incentives under the semiconductor policy, and other expected incentives for the industry make the long-term prospects for this industry much brighter.
76 | P a g e

These targets and plans have potential to attract a variety of businesses in India, belonging to diverse segments - manufacturing, installation, operation and maintenance, training engineering, procurement & construction (EPC) businesses, and more. The rest of this report provides more insights on the opportunities for these diverse segments.

Capital Cost Solar PV has one of the highest capital costs of all renewable energy sources, but it has relatively low operational costs, owing to the low maintenance and repair needs. For a solar PV power plant, the approximate capital cost per MW is approximately Rs. 16 crores the precise cost depends on scale. This includes the cost of panels, the balance of systems, the cost of land and other support infrastructures.

Break-Up for the Capital Expenses per MW

Component Amount (in Rs crores) Solar panel arrays Inverter Balance of System Installation Others (Infrastructure, Margins) 8 2 2 1.6 2.4 50 12.5 12.5 10 15 % of Total

77 | P a g e

Capital Costs for Solar Photovoltaic Systems by Scale The following table provides the approximate capital costs for solar PV power (2010)
Capital Cost for Solar PV in 2010 Capacity (MW) 1-5 5-10 10-50 50-100 Capex (Rs Crores/MW) 16 15 14.5 14

Investment in Solar PV in India

Until the end of 2009, Wind energy had held the attention of investors in India because it was considered a proven investment. This segment is now considered comparatively mature and many have started looking at other areas. Many investors see Indias potential in tapping solar energy as even greater than wind, given that its sunny days are around 93% of the year and can be more easily distributed. According to a UNEP report, total investment in clean energy excluding large hydro power in India grew 12% to $4.1 billion in 2008. The largest portion of new investment in India went to the wind sector, growing 17% -from $2.2 billion to $2.6.

Thanks to a supportive policy environment, solar investment grew from $18 million in 2007 to $347 million in 2008, most of which went to setting up module and cell manufacturing facilities.

Both equity-based and debt-based investments into solar PV power plants in India are expected to accelerate dramatically in 2010 owing to the National Solar Mission and similar thrusts provided by the state governments for solar PV investments. Some prominent examples of investments into solar PV that have taken place until Mar 2010 are provided below 1. Azure Power
78 | P a g e

2. Moser Baer Photovoltaic (for solar PV cell production) 3. Titan Solar 4. KPCL 5. Clover Solar

Financial Institutions That Fund Renewable Energy Projects in India Some of the financial institutions that fund renewable energy projects in India are given below:

ADB

IFC

Proparco

DBS

IL&FS

Rabobank

DEG

IREDA

SBI

ICICI Bank

PFC

SBI Caps

IDFC

Yes Bank

VC/PE Investment in India in Solar PV Equity-based finance infusions are increasingly becoming common in renewable energy, though in terms of overall amounts invested, project financing investments are significantly higher than equity-based investments. There are two primary equity-based investment possibilities: Venture Capital Private Equity

79 | P a g e

For medium and large capital requirements (upwards of $100 million), private equity is the most optimal route, as venture capital companies try to invest relatively smaller amounts. On the other hand, private equity companies consider investments only where the capital requirements are medium or large; as a result, for smaller capital requirements (especially for those that are less than Rs. 25 crores), venture capital is the most optimal option. Private equity companies look for growth opportunities in relatively established companies with steady revenue streams, and usually are more hesitant to invest in completely new technologies and potentially high-risk ventures. Investing in solar PV power plants could fit in their portfolio owing to the fact a long power purchase agreement with a government-backed entity assures them of a stable revenue flow. Venture capital companies look for innovative (and hence more risky) but high return investment opportunities. As a result, few, if any venture capital companies invest in solar PV power plants, where the potential upside is limited. Venture capital companies could be more interested in financing innovative products and/or technologies in the solar PV value chain that have a high upside potential.

Incentives Available
The following guidelines were issued in mid-June, 2010. The guidelines are for both solar PV and solar thermal based energy. Summary of JNNSM Guidelines for off-grid (captive, Rooftop etc.) solar systems: The National Solar Mission aims to provide an enabling environment for solar technology penetration in India. For financial assistance, the government has declared that in projects availing this scheme, in the debt and equity mixture, the promoters equity contribution must be at least 20%.

80 | P a g e

Incentives announced:

Regional Potential for Solar Power This section provides irradiation in various districts of the top 3 states for solar energy in India, namely Gujarat, Rajasthan and Madhya Pradesh. Gujarat The top 5 districts with the best solar irradiation in Gujarat are given below.

Sl. No

District

1 2 3 4 5

Patan Mehsana Banaskantha Porbandar Amreli

Average annual radiation (kWh/m2/day) 5.44 5.41 5.38 5.32 5.31

Current PV Solar Energy Scenario

81 | P a g e

PV constitutes a miniscule part in Indias installed power generation capacity with grid connected solar PV generation at a mere 17.82 MW as of Dec 2010. PV installations in India today almost entirely comprise small capacity applications. They are most visibly seen in lighting applications (street lighting, and home lightning systems) in the cities and towns, and in small electrification systems and solar lanterns in rural areas. PV is also being deployed to a small degree in powering water pump sets. No. Sources / Systems Cumulative Achievements (31.10.2010) in MW

I. Power From Renewable A. Grid-interactive renewable power 1 Wind Power 12906.73 2 Small Hydro Power 2850.25 3 Biomass Power (Agro- 979.1 wastes/Residues). 4 Bagasse Cogeneration 1494.53 5 Waste to Power 72.46 6 Solar Power 17.82 Sub Total (A) 18320.89 B. Off-grid/Distributed Renewable power(including Captive/CHP plants) 7 Biomass Power/Cogen. 267.08 (Non-Bagasse) 8 Biomass Gasifiers 128.16 9 U&I Waste-to-Energy 60.78 10 Rural Waste-to-Energy 0.45 11 Solar PV Power Plants 2.39 and Street Lights(>1kW) 12 Aero-generators/Hybrid 1.07 systems Sub Total (B) 459.93 Total (A+B) 18780.82 II Remote Village 5329/1538 Electrification (Villages/Hamlets provided with electricity/lighting system III Decentralized Energy Systems 13 Family Type Biogas 42.77 Plants (in lakh) 14 SPV Street Lighting 1,21,634 System (in nos.)
82 | P a g e

15 16 17 18

19 20

SPV Home Lighting System (in nos.) SPV Lanterns (in nos.) SPV Pumps (in nos.) SPV Water Heatingcollector area (in million.sq.m) Solar Cookers (in lakh) Wind Pumps (in nos.).

6,19,428 8,13,380 7495 3.53

6.64 1352

MW = Megawatt; kWp = Kilowatt peak; Sq.m = Square metre Source: MNRE (as on Dec 2010)

Conclusion
Solar PV power production represents the most prominent opportunity segment. But while the grid connected power production is in the limelight most times, attractive opportunities are emerging for entrepreneurs in the off-grid segment as well Some emerging models in solar power production could considerably reduce the risk of adoption and be a win-win for all parties involved. Significant opportunities exist beyond power production, in which companies in all sectors manufacturing, trading and services could play a role. Opportunities along the solar PV value chain exist for all sizes of businesses small, medium and large. Specific industries that could benefit from these diverse opportunities include electrical, chemical, software, construction/EPC service providers with equipment installation and maintenance capabilities, and engineering and design firms. It is imperative that the Indian entrepreneur analyzes these opportunities before making an investment into the fast growing solar PV industry in India and with the decreasing capital cost and low operational cost due to low repair and maintenance charges the Solar Photovoltaic power plant seems a feasible solution in future especially with National Solar Incentives.

83 | P a g e

Synopsis

KRIBHCO

Feasibility Report for Revamping Of Captive Power & Steam Generation Plant (SGPG) At Hazira
Students Name: Anshul Mangal Industry Guide: Mr. K.C. Gupta Faculty Guide: Ms. Deepmala Soni

The objective was to study the financial and investment viability of different alternatives for the revamp according to capital budgeting decisions. The company decided on major revamp of the Ammonia and urea plant to enhance the production. Due to enhancement of the production it was found out extra power would be needed. The electricity board has liberalized captive power generation for the user industry for bridging the demandsupply gap. With the opening access policy it has also made third party power sale quite lucrative. Thus company is going for revamp of Captive power plant According to investment appraisal, the case-3 (NET EXPORT Basis) alternat-5 is the most feasible solution with surplus power of 35 MW for sale and 37 MW for internal Consumption. The industry guide Mr. K.C. Gupta and his subordinate Mr. S.K. Dewan were quite helpful and supportive to the study. They provided us all the necessary information and helped us to be comfortable and understand the workings of the project as well the department

84 | P a g e