IFCI LIMITED
Mumbai Regional Office
RE-APPRAISAL NOTE ON THE PROJECT OF SHREE MAHESHWAR HYDEL POWER CORPORATION LTD. (SMHPCL) FOR SETTING UP OF A HYDRO ELECTRIC POWER PLANT WITH AN INSTALLED CAPACITY OF 400 MW ON RIVER NARMADA AT MANDLESHWAR, DISTT. KHARGONE, MADHYA PRADESH.
(Lead-IFCI)
Additional Financial Assistance sought from FIs/Banks: RTL of Rs. 1710.00 million
I. Proposal in brief
1.01Shree Maheshwar Hydel Power Corporation Ltd. (SMHPCL) a company promoted in the private sector by S. Kumars group, is in the process of setting up a
hydro electric power plant with an installed capacity of 10 X 40 MW, on the river Narmada, at village Mandleshwar, Dist. Khargone, Madhya Pradesh, in financial collaboration with Pacific Generation Development Company (PGDC) of USA. The financial collaborator was subsequently changed to Bayernwerk AG (BAG) and VEW Energie AG(VEW) after receiving letter from PGDC on 22nd May 1998 conveying their intention to withdraw from the project. However BAG and VEW had also not been able to invest in the company due to certain issues internal to their country (non-availability of political risk cover). SMHPCL had further discussed the matter with M/s Ogden Energy Asia Pacific Limited (OGDEN), who have agreed to step in as financial collaborator.
OGDEN
SMHPCL has entered into shareholders agreement with OGDEN on 3rd December, 1999. As per the said agreement OGDEN had agreed to bring 49% of the equity share capital of the company based on the CEA approved project cost subject to the conditions precedent, of which a few of the important ones are mentioned below:
OGDEN and S. Kumar Power Corporation Ltd. Being appointed to carry out O & M of the project.
Confirmation in writing from the contractors that their respective contracts remains under full force and are current with respect of cost schedule and terms and conditions of the respective contractors.
?? of OGDEN’s legal, technical and financial due diligence of the project to their satisfaction
As per the agreement, the OGDEN will have 4 directors on the Board as against the sponsored?? 5 directors and one nominee of lenders (the constitution of the Board as commissioned?? in para 8.1 requires to be broad based). The MD of the company shall be
nominated by S. Kumars and appointed by the Board of Directors and management will be professional.
OGDEN has also entered into a joint development agreement, shareholders agreement and subscription agreement. All these agreements are proposed to be sent to Lenders Legal Counsel for carrying out due diligence. As the above contract become effective due to the above condition precedent, a condition is being stipulated that before any additional disbursement out of present or proposed assistance, SMHPCL would furnish a letter from OGDEN that all conditions precedent have been complied by SMHPCL.
1.02The project would comprise of a 3.42 KM long and 36 meter high composite dam and a dam-toe powerhouse with 10 numbers turbine generator sets of 40 MW each with an aggregate capacity of 400 MW. The project was originally appraised by IFCI in April 1995 with the estimated cost of Rs. 15000 mn.
1.03Central Electricity Authority (CEA) has given necessary Techno-economic clearance (TEC) and approved the cost of the project at Rs. 15693 million without margin money toward working capital. The margin money was taken at Rs. 130 million in the aggregate project cost of Rs. 15823 million approved by CEA.
As reported by SMHPCL, it has again approached CEA in 1999, for approval of its revised project cost of Rs. 19222 mn (excluding margin money of Rs. 137 mn) comprising of USD 273.36 mn (equi. to Rs. 9704 mn at exchange rate of 1 USD = Rs. 35.50) and Rupee component of Rs. 9517 mn, which has been forwarded by GOMP/MPEB based on the study/review by ILFS to CEA.
The cost of project was again re-appraised at Rs. 18810 mn in June 1998 due to increase in civil cost, plant and machinery and exchange fluctuation. Due to delay tying up of equity the project has been further delayed. The project cost has been re-appraised in November, 1999 at Rs. 23136 mn on account of increase in civil cost, preoperative expenses and exchange fluctuation (Rs. 1036.82 mn).
Further revision in the project cost has been necessitated as now PFC has agreed to sanction FC loan in lieu of that from BVB, which has resulted in decrease in financial and interest costs. The revised project cost has now been estimated at Rs. 22342 (including the margin money of Rs. 231?? mn).
II. PRIORITY
?? adequate justification as under :-
i)????? growing ?? electricity in the state of Madhya Pradesh, which ????? terms of peaking shortage and 21.40% in terms of ????? at present.
ii)????? infrastructure, identified by the Government of India for ?????
iii)Hydel power projects deserve a high priority as they are considered more environment-friendly due to the intrinsic advantage of using renewable natural resources and being non-polluting in nature. Further, as 79% of Hydel power potential in India is still unutilized and the proposed project will help in bridging the gap.
iv)Hydro Power Plants have longer life, low operating cost, utilisation of renewable natural resource i.e. water, provide cleaner power etc. as compared to thermal power plants.
III. PARTICULARS OF APPLICANT CONCERN
Name of the Company / Shree Maheshwar Hydel Power Corporation Ltd. (SMHPCL)Date of Incorporation / 11th May 1993
Date of Commencement of Business / 6th September 1993
Registered Office / Maheshwar Hydroelectric Project,
Site Office, Post Mandleshwar,
Tehsil Maheshwar,
District: Khargone, M.P.
Corporate Office / Niranjan,
99, Marine Drive,
Bombay – 400002.
(Maharashtra)
Power Plant Location / Mandleshwar,
Distt. Khargone,
Madhya Pradesh.
Sector / Private
Installed Capacity (Proposed) / 400 MW
The main objectives of Memorandum & Articles of Association of SMHPCL inter alia include setting up of hydro-electric power project.
IV. BACKGROUND
4.01Originally, the State Government of Madhya Pradesh had entrusted execution of this hydro project to Madhya Pradesh State Electricity Board (MPEB) in December 1988. MPEB had also obtained techno economic clearance from CEA in May 1989 and accordingly MPEB has taken up initial work relating to the implementation of the project. Further work for connecting both banks of the river, construction of a downstream coffer dam-cum-causeway had also been commenced and the same has since been completed.
4.02In the meantime, according to new liberalisation policy of Government of India for participation of private sector in power generation, State Government of MP entrusted Maheshwar Hydroelectric Project to S. Kumars Group for execution and Operation of the project and MOU with State Govt. of MP was entered into on 28th July, 1993 for establishing, operating and maintenance of the project. S. Kumars Group decided to implement the project through a new company viz. Shree Maheshwar Hydel Power Corporation Ltd. (SMHPCL), with a view to have better operational/ management efficiencies. Further, SMHPCL has also entered into Power Purchase Agreement (PPA) with MPEB in November, 1994 and the same has been revised vide addendum dated 27th May, 1996 incorporating clauses as suggested by IFCI.
S. Kumars Group has formed a new company, namely SMHPCL to implement the project and to ensure inter alia , independent accounting thereby facilitating verification of project cost and determination of appropriate tariff by CEA, transparency in debt management, creation of independent security, adaptability of future changes in the policy guidelines for power sector and induction of eminent hydro power experts on the Board of new company with experience in management, operations and maintenance of similar projects.
V. DETAILS OF OUTSTANDING ASSISTANCE OF IFCI AND CREDIT RECORD (AS ON 31st October, 1999)
A. SMHPCL
Rs. in million
Facility / Sanctioned / Disbursed / Outstanding / OverduePrincipal / Interest
RTL / 500 / 200 / 200 / --- / 23.00
FLG / 2219.68 (USD 50.91 mn) / 2219.68 / 2219.68 / --- / ---
The company is in default as the project under implementation and the financial closure is yet to take place.
B. GROUP COMPANIES
Facility / Sanc. / Disb. / O/S / OverdueS. Kumars Synfabs Ltd. / RTL / 850 / 850 / 455.9 / NIL
S. Kumars Ltd. / RTL/EPS / 100 / 100 / 68 / NIL
Hindon River Mills / -- / -- / 429.6 / --
The Credit record of group companies has been satisfactory.
VI. PROMOTERS/GROUP
SMHPCL has been promoted by S. Kumars Group, who are well known in the field of manufacturing of synthetic textiles, such as suiting, shirtings, dress materials etc. for the last 5 decades. The group has also diversified into manufacture of tyres and tubes for 2-wheelers and 3-wheelers besides finance and investments. The group’s turnover and net worth for the year ended 1997-98 was around Rs. 5690 mn and over Rs. 2830 mn respectively. S/Shri Abhay Kumar S. Kasliwal and Shambukumar S. Kasliwal are at the helm of the affairs of the group who are supported by their sons viz. S/Shri Ambuj A. Kasliwal, Warij. A. Kasliwal, Vikas S. Kasliwal, Nitin Kasliwal and Mukul S. Kasliwal.
VII. PERFORMANCE OF THE GROUP/ASSOCIATE COMPANIES
7.01As mentioned earlier, S. Kumars group is primarily engaged in the textile business as has diversified into tyres and tubes manufacturing and in financial sector business. S. Kumars group have 6 main companies viz. S. Kumars Ltd., S. Kumars Synfab Ltd., S. Kumars Enterprises (Synfab) Ltd., S. Kumars Tyres Manufacturing Ltd., Shree Ram Mills Ltd. and S. Kumars Infrastructure Corporation Ltd.
A statement showing summary of working results and financial position of the aforesaid companies in Annexure-I. The operation details of the said companies are as under :-
i) S. KUMARS LTD. (SKL)
SKL is closely held profit making concern with satisfactory track and credit record. SKL was incorporated on August 18, 1972 and has fabric processing unit at Dewas (M.P.) and Andheri in Bombay to process synthetic and worsted suiting, dress materials, sarees etc. At present, SKL only undertakes the processing activity for the group on job work basis and the finished products are marketed by its other group companies. SKL’s working for the year ended 31st March, 1998 resulted in a net sales of Rs. 1652 mn on which it made a net profit of Rs. 8 mn and a cash profit of 13 mn. SKL has not been declaring dividend so as to plough back profits into business. SKL’s net worth as on the above date was Rs. 78 mn represented by share capital of Rs. 9 and Reserves & Surplus of Rs. 69 mn.
ii) S. KUMARS SYNFAB LTD. (SKSL)
SKSL is the flagship company of the group. SKSL is engaged in weaving of fabrics at its plant at Dewas and in texturising and twisting activities at its plant at Pithampur and trading in synthetic/blended fabrics. SKSL is a profit making and dividend paying company. SKSL’s working for the year ended September 30, 1998?? resulted in a net salary of Rs. 3875 mn on which it has made a net profit of Rs. 82 mn. SKSL’s net worth as of the above date was Rs. 2280?? mn. SKSL’s equity share of Rs. 10/-each was ?? at Rs. 32.05 on National Stock Exchange on the 09/12/99??. SKSL is presently setting up a state of the art composite textile unit at Dasna?? village near Gaziabad at
estimated cost of Rs. 5200 mn which has been funded by IDBI, Exim Bank, LIC, GIC and Banks.
iii) S. KUMARS ENTERPRISES (SYNFAB) LTD. (SKEL)
SKEL is a closely held company engaged in trading and manufacturing of cloth at its plant at Dewas.
iv) S. KUMARS TYRE MANUFACTURING COMPANY LTD. (SKTMCL)
SKTMCL is engaged in manufacturing tyres and tubes for 2-wheelers and 3-wheelers at its plant at Pithampur. At present, its entire production is being carried out on job work basis for Apollo Tyres Ltd. SKTMCL was financed by ICICI & IFCI and initially it has to face teething troubles. SKTMCL for the year ended March 31, 1998 had made a total of income of Rs. 74 mn on which on which it earned a net profit of Rs. 3 mn. It has a net worth of Rs. 207 mn as 31st March, 1998. SKTMCL has recently made premature repayment of its outstanding loans and interest by way of one time settlement to ICICI and IFCI.
v) SHREE RAM MILLS LTD. (SRML)
SRML, a composite textile mill in Bombay, was taken over by S. Kumars Group in 1979. SRML is implementing a Rehabilitation Scheme with restructuring of liabilities, production facilities and labour force, as sanctioned in November, 1994 by Appellate Authority for Industrial and Financial Restructuring (AAIFR). SRML has paid entire settled liabilities of financial institutions and banks.
vi) S. KUMARS INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. (SKIDCL) (formerly S. Kumars Finance and Investment Ltd.)
SKIDCL, incorporated in January 1990, is a finance and investment company to deal in infrastructure and financial services and shares/stocks. During the year ended March 31, 1998, its total income was Rs. 23 mn on which it earned net profit of Rs. 12 mn. Its net worth as on that date stood at Rs. 182 mn.
vii) S. KUMARS POWER CORPORATION LTD. (SKPCL)
SKPCL has been incorporated in February 1995 with a view to promote power project and other synergic areas. SKPCL proposes to hold major equity capital as promoter of SMHPCL.
viii) Hindon River Mills Ltd. (HRML)
?? September 1998 the group acquired management control of HRML, a subsidiary company of DCM Shriram Industries Ltd. The lenders including IFCI have recently ?? their advance??
VIII. MANAGEMENT AND ORGANISATION
SMHPCL is a board managed company having 8 directors including 4 directors from the promoter group as under:
S/Shri
1.Shambhu Kumar S. Kasliwal / Chairman, Promoter Group2.Warij A. Kasliwal / Promoter Group
3.Vikas S. Kasliwal / Promoter Group
4.Mukul S. Kasliwal / Promoter Group
5.G. P. Singh / Outside Professional
6.Dr. N. P. Jain / WTD (R & R)
7.S. P. Singh / WTD
8.R. S. Rajput / IFCI nominee
As per the Shareholders Agreement between SMHPCL and Ogden the board is supposed to have ten directors, 5 from Indian promoters, 4 from Ogden and 1 from Lenders. The said provision is required to be amended and board is required to be broad based to the satisfaction of the lenders. A pre-disbursement condition is being stipulated for this.
Management set up and organisation
The day-to-day affairs of SMHPCL are being looked after by Shri Vikas Kasliwal and Mukul Kasliwal. Shri Vikas Kasliwal, aged 40 years, is MBA from Harvard University and has considerable experience in textile industry. Shri Mukul Kasliwal, aged 34 years, is a MBA from University of Rochester, USA, having considerable experience in the financial area and is looking after finance function, legal work, management information system and administration side of the project. SMHPCL has appointed Shri S. P. Singh, Ex-Chairman of Tehri Project as WTD and K. C. Goel, Ex-Member (Generations), MPEB as adviser. Shri S. P. Singh, WTD is being assisted by GM (Works), Shri A. K. Bahadur, ex-chief engineer of NHPC, Shri S. P. Singh, electrical engineer, Shri Bhatt, civil engineer, Shri Raj Kumar and Shri Lahiri all having experience of many hydro project with NHPC/BHEL.
SMHPCL has appointed Shri Nirmal Falgunia, a Chartered Accountant having 20 years experience in project finance as Executive Director – Finance to look after finance and accounts. The Organisation Chart is annexed as Annexure II.
????? M/s Harza Engineering Company International of USA (Harza) for construction and operation of Hydro Electric Power Projects ????? Engineers to the project and they will closely monitor the project implementation work and also co-ordinate and supervise the work of various contractors. HARZA is getting the design done from M/s Consulting Engineers Services -a renowned engineering and architectural company having 25 years of experience in hydel projects and other civil construction areas to provide complete design and engineering consultancy in collaboration with Harza.
IX. Capital structure (As on 30th September, 1999)
Rs. in million
EXISTING / PROPOSEDAuthorised / 25000
(2500 mn equity shared of Rs. 10 each) / 25000
(2500 mn equity shares of Rs. 10 each)
Subscribed and paid up / 1260 *
(126 mn equity shared of Rs. 10 each) / 6940
* subscribed entirely by the Indian Promoters
In addition to above, SMHPCL has received share application money from Indian Promoters to the extent of Rs. 104 mn and Rs. 75.6 million from PGDC as associate.
SMHPCL has entered into a Share Holders Agreement with OGDEN. As per the SHA, OGDEN shall hold 49% equity of the company and balance would be held by S. Kumar group and their associates. As per the SHA, OGDEN will subscribe to the extent of US $73.35 million equivalent to Rs. 3191 mn.
OGDEN GROUP:
Ogden Energy Asia Pacific Ltd. (OGDEN), Hong Kong is a wholly owned subsidiary of Ogden Energy Group Inc. (OEG) which in turn is 100% owned by the parent company Ogden Corporation (Ogden), a publicly held US corporation, incorporated in Delaware, USA.
Ogden is a diversified company providing a wide range of services through its two business segments viz. Ogden services and Ogden energy business.
The operations of OGDEN’s services are performed by Ogden Services Corporation and its subsidiaries principally through its Entertainment Services and Aviation Services operating groups. The Entertainment services group provides total facility management services, presentation of concerts and family shows, food, beverages, novelty, janitorial, security, parking and other maintenance services, to a wide variety of public and private facilities including more than 100 stadiums, convention and exposition centers, arenas, parks, theatres and fairgrounds located in the US, Mexico, Canada, Argentina, Brazil, Spain and the UK. Entertainment also operates a racetrack and five off-track betting parlours in Illinois. The Aviation services provides specialised support services to 185 airlines at 100 locations throughout the US, Canada, Europe, Latin America and the Pacific Rim. The specialised support services provided by this group include comprehensive ground handling ramp, passenger, cargo and warehouse, aviation fueling and in flight catering services. These services are performed through contracts with individual airlines, through consolidated agreements with several airlines and contracts with various airport authorities. In January 1995 Ogden acquired Applied Data Technology Inc. (ADIT), San Diego, California. ADIT is a leading supplier of air combat maneuvering instrumentation systems and after action reporting and display systems.
The operations of the OGDEN’s energy business segments are conducted by Ogden Energy Group Inc. (OEG) through four principal business areas viz. independent power, water, waste to energy and environmental consulting & engineering. The independent power business is conducted by the wholly owned subsidiary of OEG viz. Ogden Energy Inc. (OEI), which develops, operates and, in some cases, invests in independent (i.e. non-utility) electric energy generation (Independent Power Production or IPP) projects, in the US as well as in other countries which sell their output to utilities, electricity distribution companies or industrial consumers. OEI presently has an ownership interesting, or is the operator and designated to be the operator of thirty-eight generation facilities with a total nameplate capacity of 1172 MWs, located in the US, Costa Rica and Bolivia. OEI continues to seek to expand its ownership and operation of IPP projects and is presently focusing on opportunities in the US, Central and South America, the Pacific Rim and India. OEI generally seeks to participate in IPP projects in which it can make an equity investment and become the operator. OEI also seeks to have a role in the development of the projects. Some of the recent power projects in which OEI is involved are (i) 240 MWs gas fired cogeneration facility in Maryland, USDA where OEI is providing start-up services and will be the operator, (ii) 480 MWs coal fired independent electric generating facility in the Republic of Philippines which OEI is developing as part of an incorporated consortium, (iii) Two run-of-river hydro electric projects in Costa Rica of 31 MWs combined capacity in which a subsidiary of OEI has entered into long-term O&M contracts. The water and waste water operations are conducted through a joint venture with Ogden Yorkshire Water Company (OYWC) formed by a subsidiary of Ogden and OEG with a wholly owned subsidiary of Yorkshire Water Plc. a major British water and waste water utility. OYWC operates and maintains waste water treatment facilities for municipalities in New York State. IN 1995, OYWC was also selected for a 25 year water and waste water privatisation programme with the city of Santa Marta, Colombia and signed a letter of intent with City of Bessemer, Alabama to design, build and operate a 20 million gallon per day water filtration, raw water intake and water transmission line system/facilities. Along with a strong local partner, OYWC was also pursing a 30 year concession for municipal wastewater treatment and water recycling in Muscat, Oman. The waste-to-energy (WTE) operations are have been consolidated in a wholly owned subsidiary of OEG viz. Ogden Waste to Energy Inc. (OWTE). The WTE facilities combust municipal solid waste to make saleable energy in the form of electricity or steam. This group completed construction of its first WTE facilities in 1986. It currently operates 28?? WTE facilities at 27 locations all in USA and is the owner or lessee of 17 of them. OWTE has the exclusive right to market in the USA the proprietary, massburn technology of Martin GmbH fur?? Umweit??-und Energietechnik (Martin). All of the facilities OWTE has constructed use Martin technology. OEG’s environment consulting services are provided through Ogden Environmental and Energy Services Co. Inc. (OEES) which provides?? a comprehensive range of environmental infrastructure and energy consulting engineering and design services to industrial and commercial companies, electric utilities and governmental agencies. These services include analysis and characterisation, remedial?? investigations, engineering and design, data management, project