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1 Financial Evaluation
Financial evaluation involves real term expenditure and income scenario to predict
financial indicators like Internal Rate of Return (IRR), Benefit Cost Ratio (BC Ratio),
Debt Service Coverage Ratio (DSCR) and Payback Period etc.
1.2 Assumptions
Financial evaluation is based on a number of key assumptions and parameters. A
reference or base case for analysis was prepared and then sensitivity cases were
analysed. The principal criteria and parameters are discussed below.
1.7 Depreciation
Depreciation rate applied is 3.33% percent per annum is used.
1.8 VAT
VAT @ 13% is payable to the government or its bodies have to be considered in the
financial evaluation.
1.13 Disbursement
Major amount of the project cost is disbursed within construction period in the
proportion of 5% in the first year, 15% in the second year, 30% in the third year and
50% in the fourth year. However, annual cost including operation and maintenance cost
is spread over the period of the analysis. Similarly, the project benefits are received
during the operation period only.
1.14 Financial Analysis – Assumptions and Result
A preliminary financial analysis was carried out for cash flow of revenue and
expenditure. Analysis on dry season energy – 9.54GWh and wet season energy –
216.97 GWh was carried out for revenue calculation.
It has been assumed that debt equity ratio will be 70:30 with an interest rate of 10%
on debt. Royalties and taxes have been deducted from the revenue.
Financial Factors
Insurance Charges 0.5% of Total Project Cost
Financial Costs
Total Project Cost without IDC NRs. 8108.18 million
Total Project Cost With IDC NRs. 9331.93 million
Total Project Cost in USD without IDC USD 75.77 million
(1 USD = NRs. 107)
Loan
Debt : Equity 70 : 30
Loan Amount NRs. 5675.73 million
Interest Rate 10%
Loan Repayment (after commercial operation) 10 years
No. of payment per year 4.00
Energy Production
Firm or Dry Season 94.54 GWh
Secondary or Wet Season 216.97 GWh
Energy Prices
Energy Benefit
Dry Season Energy Price 8.40 NRs./kWh
Wet Season Energy Price 4.80 NRs./kWh
Estimated CoD 2022/2023
Escalation of Energy Prices 3%
Number of years for above escalation 8
Income Tax
Till 7thyear of operation 0%
8 -10 year of operation
th th
10%
After 10 year of operation
th
20%
Royalty
Upto 15 years - Energy Royalty 2.00%
Upto 15 years - Capacity Royalty / kW installed (in NRs.0.00015
Millions)
After 15 years - Energy Royalty 10.00%
After 15 years - Capacity Royalty / kW installed (in NRs.0.00120
Millions)
Other Assumptions
Growth on Salary and Wages per year 3%
Depreciation (on project cost ) 3.33% (i.e. 30 years of CoD)
Repair and Maintenance (on project cost) 0.5%
R & M escalation per year after commissioning 5%
Insurance cost (after commissioning) 0.5% of project cost
Results
Project Internal Rate of Return 16.39.66%
Equity IRR 25.98%
Project NPV NRs2643.86million
Project Benefit Cost Ratio 1.57
Average DSCR 1.77
Project Payback Period 5.20 years
Results
Project IRR 14.96%
Project NPV NRs. 1914.65 million
Project BC Ratio 1.37
Average DSCR 1.60
Project Payback Period 6.1 years
Project’s IRR under this sensitivity test is well above the opportunity cost of capital of
10% and Net Present Value is positive. Average DSCR and Benefit Cost Ratio are more
than one as well. Therefore, the project is economically viable even with 10% increase
in investment cost and IDC.
1.15.2 At 90% of project revenue
Results
Annual Sales Revenue (after 1st year of production) NRs. 1652.10 million
Project IRR 14.79%
Project NPV NRs. 1634.46 million
Project BC Ratio 1.35
Average DSCR 1.58
Project Payback Period 6.5 years
According to the results obtained, the project is economically viable even with 10%
decrease in revenue.
1.15.3 Interest Rate Increased to 12%
Results
Project IRR 15.96%
Project NPV NRs. 2435.20million
Project BC Ratio 1.49
Average DSCR 1.58
Project Payback Period 6 years
According to the results obtained, the project is economically viable even with interest
rate at 12%.