Karnataka Waste-to-Power

Astrid Fernandez
Annie Hsieh
Daniel Pedisich
Akshat Sarvaria
Sue Veksler
Agenda
 Background on India
 Current Business Environment
 The Case and Solution
 Risks and Benefits
No pun intended!
 Feasibility Analysis/ Valuation
 Future Prospects
 Conclusion/ Q&A
India: Social Background
Population (July 2002 estimate) 1,045,845,226
Age Structure
0-14 years old 32.7%
15-64 years old 62.6%
65 years and over 4.7%
Population Growth Rate (2002 1.51%
estimate)
Life Expectancy at Birth (total 63.23 years
population)
Literacy (age 15+ can read and
write)
Total population 52%
Male 65.5%
Female (1995 estimate) 37.7%
India: Political Background
 A parliamentary federal democracy.
 The Republic of India is made up of 29 states, and
six union territories.
 As the largest democracy in the world, India has held
regular and largely free elections since 1947.
 Economic liberalization through opening up to foreign
participation.
The Kashmir conflict with Pakistan.
India: Economic Background
 5th largest economy in the World and the 3rd largest GDP in
Asia.

 GDP growth averaged 5.8 percent in the 1990’s.

 India’s economic growth started to decelerate after 1996

due to:
- the decline in economic reforms in the financial sector,
infrastructure, trade and industrial policy, privatization, and labor laws.
- slowing of growth in real investment.

 Effects of the Asian currency crisis.

Why India?
 The government has been
supporting and encouraging greater
outside participation in its private
sector.

 Long tradition of an established

legal, accounting, and judiciary system

 Higher disposable incomes of Indian

citizens and growing middle class.

 Large English-speaking population.

Why Bangalore, Karnataka?
 India’s technology sector
presently represents 1% of
its $200 Billion GDP (or $2
Billion).

 Expected to be $87 Billion

by 2008 (Nasscom and
McKinsey and Co.).

 Bangalore is the “Silicon

Valley” of India.
 Our Solution:
Karnataka Waste-to-Power
Problems & Solutions

 Too much garbage = Problem

 Not enough electricity = Problem
 Waste to Energy = Solution

KWP offers a two-pronged solution,

simultaneous waste disposal and
energy production.
How does Waste-to-Energy work?
Why is Karnataka the best place?
Physical Characteristics of Solid Waste from some Cities in India

Cities Paper Plastic Metal % Glass% Ash& Total

% % Earth %
Calcutta 3.18 0.65 0.66 0.38 34.00 47.00

Delhi 6.29 0.85 1.21 0.57 36.00 35.00

Nagpur 1.88 1.35 1.33 1.34 41.42 34.81

Bangalore 4.00 2.00 0 1.00 15.00 78.00

Bombay 10.00 2.00 3.6 .2 45.60 40.00

Risks Associated With India

 Decreasing funds for education could impede

economic growth.
 Dispute with Pakistan leads to travel advisories and
less investors.
 Political instability and lack of consistent
government.
More Risks Associated With India

 Expertise lacking in regulatory bodies.

 Indian Governments have not come to terms with
independent regulation.
 Cannot trust or even speculate decisions made by
the regulatory body when in fact, an investor does
not know who is calling the shots.
But Opportunities Remain….

 Apparent mismatch between production and

population

Growth potential

Templeton Developing Markets Trust fund fact sheet, 2002

Opportunities in India

 In India the information technology

industry currently represents just
over 1% of the country’s $200
billion economy.

 This reflects expectations that

Internet usage in India will expand
at one of the fastest rates in Asia,
boosting knowledge and ultimately
income.
The Valuation
 Based on the model of Wheelabrator Technologies Inc.,
a U.S. based subsidiary of Waste Management, Inc.

 The initial purchase of a fleet of garbage trucks is based

on a fleet of 500 trucks, costing $100,000 each.

 We assume that we charge the municipal government

$30/ton to collect waste. This is a cost that we intend to
increase 3% per year in real terms.

 We intend to produce 0.5% of the energy required in the

local market (approximately 100 megawatts), and
increase our production by a rate of 3% annually.
The Valuation
 Operating a sanitary disposal (a capped landfill) costs
approximately $25/ton, increasing 3% annually.

 Transportation costs are approximately $18/ton, also

increasing 3% annually, and this represents the bulk of our
expenses.

 Plant operational costs grow at about 4.33% annually to

accommodate more input and output.

 Electricity is sold at the market rate, and increases at the

rate of inflation each year.

 The amount we need to put in a sanitary landfill for disposal

actually decreases over time.
The Valuation
2003 2004 2005 2006 2007 2008 2009 2010 2011

$ $ $ $ $ $ $ $
$ 77,854 84,750 92,257 100,42 109,32 119,00 129,55
71,519,57 ,643.6 ,856.6 ,922.9 9,950. 5,840. 9,710. 1,359.
Revenue from waste management 65,700,000.00 8.34 3 9 1 46 34 86 81

$ $ $
$ $ $ $ $ $
5,371,450. 5,532, 5,698, 5,869, 6,045, 6,226, 6,413, 6,606,
Electricity Sales 5,000,000.00 00 593.50 571.31 528.44 614.30 982.73 792.21 205.97

$ $ $ $ $ $ $ $
$ (9,022, (9,818, (10,68 (11,62 (12,65 (13,76 (14,97
(8,291,793 813.96 282.39 3,880. 5,792. 0,743. 6,057. 9,699.
Cost of operating plant (7,620,000.00) .68) ) ) 82) 05) 96) 59) 38)

$ $ $ $ $ $ $ $
$ (23,35 (23,05 (22,73 (22,39 (22,02 (21,63 (21,21
Sanitary Disposal of Remaining Waste (23,629,78 3,022. 4,853. 4,455. 0,985. 3,571. 1,315. 3,286.
Cost (approx $25/ton,inc. 3% annually) (22,452,123.70) 0.01) 52) 15) 19) 12) 74) 36) 87)

$ $ $ $ $ $ $ $
$ (43,06 (43,63 (44,21 (44,80 (45,39 (46,00 (46,61
Waste Transportation and Collection (42,495,12 0,313. 3,015. 3,334. 1,371. 7,230. 1,013. 2,826.
Costs (approx $18/ton,inc. 3% annually) (39,420,000.00) 8.10) 31) 47) 58) 93) 18) 34) 82)

$ $ $ $ $ $ $ $
$ $ 13,943 20,495 27,657 35,481 44,025 53,351
2,474,326. 7,951, ,276.9 ,780.7 ,415.6 ,277.1 ,116.7 ,752.7
Profit/Loss (146,250,000.00) 1,207,876.30 55 087.34 8 6 6 9 8 2
The Valuation

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

$ $ $ $ $ $ $ $ $
$ $ 181,9 198,0 215,5 234,6 255,4 278,0 302,7 329,5
167,117,0 19,92 34,04 75,51 70,77 57,45 85,38 17,64 31,78
Revenue from waste management 141,026,767.54 153,518,644.60 27.85 9.47 3.35 4.13 4.30 5.53 0.58 3.28 3.94
$ $ $ $ $ $ $ $
$
$ $ 7,112, 7,164, 7,217, 7,269, 7,321, 7,373, 7,425, 7,477,
7,060,673 823.9 973.9 123.9 273.9 423.9 573.9 723.9 873.9
Electricity Sales 6,804,392.15 7,008,523.92 .92 2 2 2 2 2 2 2 2

$ $ $ $ $ $ $ $ $
$ $ (21,00 (22,85 (24,86 (27,06 (29,44 (32,04 (34,86 (37,94
(19,301,1 2,798. 4,444. 9,336. 1,864. 7,689. 3,853. 8,900. 3,009.
Cost of operating plant (16,300,338.14) (17,737,406.92) 70.41) 27) 87) 15) 08) 44) 69) 71) 25)

$ $ $ $ $ $ $ $ $
Sanitary Disposal of Remaining $ $ (19,26 (18,70 (18,10 (17,48 (16,81 (16,12 (15,38 (14,61
Waste Cost (approx $25/ton,inc. 2% (19,794,8 3,788. 1,868. 7,930. 0,813. 9,316. 2,202. 8,192. 5,967.
annually) (20,768,526.85) (20,296,044.63) 17.28) 67) 38) 69) 46) 99) 87) 81) 35)

$ $ $ $ $ $ $ $ $
Waste Transportation and Collection $ $ (49,14 (49,79 (50,45 (51,12 (51,80 (52,49 (53,19 (53,90
Costs (approx $18/ton,inc. 2% (48,497,5 2,541. 6,137. 8,425. 9,522. 9,545. 8,612. 6,844. 4,362.
annually) (47,232,777.41) (47,860,973.35) 24.30) 37) 17) 80) 86) 51) 47) 01) 04)

$ $ $ $ $ $ $ $ $
$ $ 99,62 113,8 129,3 146,2 164,7 184,7 206,6 230,5
86,584,18 3,625. 46,56 56,94 67,84 02,32 94,28 89,42 46,31
Profit/Loss 63,529,517.29 74,632,743.61 9.77 08 6.84 5.40 7.82 7.51 5.47 9.66 9.22
Revenue & Cost of Capital
Cost of Capital Calculation -
Goldman Integrated
Model

India
$
US Risk-Free Rate A 5.00%
Plant Start-up Cost (137,500,000)
US Market Risk Premium B 4.51%

Comparable Beta C 1.5

Country Premium D 6.00%

Cost of Equity E=A+(B*C)+D 17.77%

NPV using Cost of Equity $43,646,893.33

•The positive net present value of $46,646,893.33 is based on a discount rate of 17.77%, the approximate cost of equity, over
the twenty-year projected life of this illiquid investment, taking a 4.3% inflation rate into account, increasing all revenues and
expenses by at least this amount. We also include a thirty percent subsidy by the Indian government for the initial
construction costs of the power plant, which is being provided to companies involved in renewable energy projects.
Potential Problems?
 There is a strong chance that that our valuation
accurately reflects the worth of this project.

 Unforeseen costs, such as litigation, strikes, changes in

the regulatory environment, cleanup of environmental
catastrophe, or inability to collect funds due for our
collection services, could severely hamper our business
model.
Potential Problems?
Other risks to the valuation include, but are not limited to:

 High initial capital cost,

 financing issues due to lack investor confidence in a risky

venture,

 most of the technologies developed may not be suitable

for the nature of Indian waste.
Potential Problems?

 Lack of financial resources at the local and state

government levels.

 Lack of long term strategy and concrete policy on

waste management.

Lack of awareness of environmental issues in the

culture, tempering enthusiasm for environmentally
beneficial projects
But…

 Our model assumes that we are the sole collector of

municipal solid waste in Karnataka, and we process
100% of the waste.

This is likely to occur for the foreseeable future due to

the extensive start up costs to start such a business in
this risky, but potentially profitable, market.
Future Prospects
 The model could be implemented in other Indian cities, as
well as other developing markets.

 A real option to expand could increase the net present value

dramatically.

 The social benefits of managing waste responsibly would

make the value-added nature of this project a worthwhile
venture for the local and national governments to support.

 Other foreign investors in the region may be willing to invest

in this venture as well; everyone needs electricity and waste
management!
Any Questions?