PROJECT & TRADE FINANCE Feasibility Modeling CASE LIBERTY POWER TECH LTD.

PROJECT & TRADE FINANCE
Feasibility Modeling
CASE LIBERTY POWER TECH LTD.
Liberty Power Tech Ltd: Project Financing in Pakistan
A review of the Liberty Power Tech Ltd
(LPTL) project and Financial Model
Presentation by:
Lauri Puro
Financial Analyst
Wärtsilä Development & Financial Services
Power Plants
Email: lauri.puro@wartsila.com
© Wärtsilä Project & Trade Finance - March 29th 2011
Development schedule of Liberty Power tech Ltd.
March-09: Financial Close
Finalization of loan docs and
other Project Agreements
Feb-09: Shareholders’ agreement
signed, Initial equity funding
Feb.08:
Tariff Approval
Jul-08: PPA
and IA signed
2007
Aug.2007: EPC
commitment
from project
company
Dec-08:Fuel
supply agreement
signed
Wärtsilä development offering:




Dec-10:
Project
COD
Mar/Apr-09: 1st
facility drawdown
2008
Aug-08: EPC
signed
Dec-09: O&M
negotiations
started
2009
Jun-09: EPC
Starting Date
2010
Construction
Mar-09:
Performance
bonds and
L/Cs opened
Site identification together with the sponsors
Tariff determination and approval with NEPRA – National Electric Power Regulatory Authority
Organizing the needed permits, such as the Environmental License and the Construction & Operation permit
Contract negotiations, including IA (Implementation Agreement), PPA (Power Purchase Agreement), EPC (Engineer, Procure
& Construct), FSA (Fuel Supply agreement), O&M (Operations & Maintenance), Financing Agreements, etc.
 Arranging equity financing
 Arranging debt financing
© Wärtsilä Project & Trade Finance - March 29th 2011
Project Summary
Sponsors / Shareholders
Liberty Mills Ltd.40% / Mukaty Family 39% /Soorty Enterprise 10%/ Wartsila 11%
Offtaker
National Transmission and Dispatch Company Limited
Fuel Supplier
Shell
EPC Contractor
Wärtsilä Finland Oy and Wärtsilä Pakistan (Pvt.) Ltd.
O&M Contractor
Wärtsilä
Financiers
Syndicate of 17 Pakistani banks, lead arrangers Allied Bank Ltd and Meezan Bank Ltd.
Project Cost
231.4 MUSD ( ~180 MEUR)
Capital Structure
75% debt 25% equity
Project Size
200 MW (Gross ISO)
194.65 MW (Net)
Technology
Combined Cycle / 4 stroke Diesel Engine
Equipment
11 RFO Diesel Engines, 11 Heat Recovery System Generators, 1 Steam Turbine and other allied
electrical and mechanical equipment
Project Site
Faisalabad
Commercial Operations Date
December 2010
PPA duration
25 years
Levelized Tariff
12.5374 Cents/kWh (as per tariff approved by NEPRA)
Equity IRR
15% approved by NEPRA
DSCR
Min 1.37x, Ave. 1.46x
© Wärtsilä Project & Trade Finance - March 29th 2011
Total Project Costs ($ ‘000)
Project cost item
EPC Contract
Value
177 249
Taxes and duties
9 084
O&M Mobilization
2 750
Land and infrastructure
1 651
Staff housing colony
1 675
Non EPC Costs
3 244
Start-up and utilities
922
Insurance
2 393
Development Costs
1 964
Financing charges and fees
4 200
Interest during construction (IDC)
Total Project Cost
© Wärtsilä Project & Trade Finance - March 29th 2011
26 282
231 415
Financing Plan

Total senior debt, 13 850 M PKR (173.6 MUSD) comprises two components:
– 89% of senior debt, facility, is structured as a sharia-compliant sukuk bond
– 11% of senior debt is structured as conventional long-term debt
– Both facilities have the same terms and conditions

Features of the sukuk-bond:
–
–
–
–

A corporate bond that complies with Sharia Islamic law
The bond holder holds an ownership to the project while the bond issuer commits to
repurchase the project at bond maturity
Meanwhile, the bond issuer pays quarterly “rent” to the bond holder for using the asset
The net effect of Sukuk bond cash flows (rents + repurchase) equal those of a
conventional bond (interest + principal)
Max. tenor 12 years door-to-door
– 24-month availability period for facility drawdown (“Musharaka contribution”), drawdown
schedule is linked to EPC payment schedule
– 10 year repayment term from project COD (“Sukuk redemption”)
© Wärtsilä Project & Trade Finance - March 29th 2011
Allied Bank Limited
Meezan Bank Limited
Project security package
Security Package:
All project agreements including PPA, IA, FSA, O&M, EPC, Government of
Pakistan Guarantee
All permits, licences, insurances, and intangible assets such as all bank
accounts
EPC Contractor Bonds and O&M Guarantees
Pledge on all tangible assets such as mortgages on land lease, plant, equipment
and shares of equity
© Wärtsilä Project & Trade Finance - March 29th 2011
Project structure of Liberty Power Tech
WDFS
ESC: Wärtsilä
Finland Oy
Equity %
Local sponsors: Liberty Mills
& Mukaty family
100% Equity &
Sponsor Support
Sukuk bond
Wärtsilä EPC
EPC Contract
CSC: Wärtsilä
Pakistan Ltd.
O&M Contract
Wärtsilä
Pakistan Ltd.
Liberty Power
Tech
Debt
Syndicate of 17 banks
led by Allied Bank
Wärtsilä
O&M
Power Purchase
Agreement
Off-taker: National
Transmission and
Dispatch Company
Fuel Supply
Agreement
Permits, Tariff
Approval
Implementation
Agreement
National Electric
Power Regulatory
Authority (NEPRA)
Letter of Support
Sovereign
Guarantee
Government of
Pakistan
© Wärtsilä Project & Trade Finance - March 29th 2011
Shell
Power Purchase Agreement
 Power Purchase agreement (PPA) is the legal contract between LPTL (electricity generator) and
National Transmission and Dispatch Company (NTDC, Power Purchaser)
 Power tariff to be paid by NTDC to LPTL is defined through the following approval process:
1. Pre-qualified IPP project presents their costs (capital costs and operational costs) to the
National Electric Power Regulatory Authority (NEPRA)
2. NEPRA approves the project budget and determines a power tariff that the project is allowed
to charge from the power purchaser
 Capacity payment – a fixed charge for each kW of capacity available to generate
electricity
– Includes compensation on debt service, return on equity, working capital and fixed
operational expenses
 Energy payment – a variable charge for each kWh of energy dispatched
– Consists of a fuel component, and variable O&M component
– Terms, indexation and adjustments are defined in the PPA
 PPA determines the roles and responsibilities of the parties in detail, including
– Construction, commissioning and operation
– Termination due to the project company or power purchaser
– Force Majeure protection
– Protection for change in tax and change in law
– LDs for i) delay, ii) lack of output
– Resolution of disputes
© Wärtsilä Project & Trade Finance - March 29th 2011
EPC Contract
 EPC = Engineering, procurement & construction is a full-scope
turnkey delivery of a power plant to the customer
 Engineered equipment supply contract (ESC) executed between
LPTL and Wärtsilä Finland Oy in August 2008
 Construction supply contract (CSC) executed between LPTL and
Wärtsilä Pakistan Ltd in August 2008
 Total value of EPC: $177.2 MUSD
 EPC contract stipulates the following issues:
– Specified plant output, efficiency, guaranteed COD (Commercial
Operations Date)
– Emission levels and compliance with relevant emission limits
– LDs for i) delay, ii) lack of output, iii) lack of efficiency
– Warranty period
– Detailed procedure for establishing COD
– Force Majeure protection
– Change in Law protection
– Limits of liability
– Governing Law
– Dispute Resolution
© Wärtsilä Project & Trade Finance - March 29th 2011
O&M Agreement
 Entered into between LPTL and O&M contractor (Wärtsilä
Pakistan Ltd)
 O&M contractor has the full responsibility of the operations
and maintenance of the plant including:
– Day to day operations by Wärtsilä personnel
– Scheduled and unscheduled maintenance
– Administration, HR and training of personnel
– Purchasing and management of spare parts inventory
and tools
– Logistics and security
 O&M contractor guarantees:
– Plant availability
– Rate of fuel consumption
– Rate of lube oil consumption
 Fixed tariff over contract period (5+5 years) with two
components:
– Fixed charge: Rp/Month (unrelated to plant dispatch)
– Variable charge: Rp/MWh (Payable per each MWh
dispatched)
© Wärtsilä Project & Trade Finance - March 29th 2011
Insurance
Construction Phase
Marine cargo loss
Loss of revenue (Following marine incident)
Contractors’ all risk (CAR)
Loss of revenue (following CAR event)
Third party general liability
Operating Phase
All risks insurance – fixed assets
Consequential loss following all risks event
Machinery breakdown
Consequential loss following machinery break-down
Third party general liability
Workers comp, social security, employers liability,
vehicles
© Wärtsilä Project & Trade Finance - March 29th 2011
Project Proforma
PROJECT SUMMARY SHEET
1 ASSUMPTIONS
General
Timing
Project Name
Project Location
Plant Configuration
Date
Liberty
Pakistan
11*18V46
20.10.2008
Model Status
Investment Start
Construction Period
Project Start (COD)
Project End
Project Lifetime
Version 6
Includes specified ageing
Includes decresing L/C demand
Year
Months
Year
Year
Years
Funding Check
Balance Check
Debt Repayment
Depreciation
2009
24,0
2011
2034
25,0
OK
OK
OK
OK
Financing Assumptions
Debt Financing
Equity Financing
75,00%
Equity - Pari Passu
25,0 % Equity - Pari
1 Passu
Equity - First In
Senior Loan Funding Portion
Funding amount
[---------------------------- Senior loans ----------------------------]
Local Loan
100,00%
0,00%
0,00%
Real
Project IRR
Simple IRR
Tariff
Variable Expenses
Fuel Component
Fixed Expenses
Capital Component
Total Tariff
%
%
Nominal
16,6 %
15,9 %
Technical Performance
16,6 %
15,9 %
2011
Net Capacity
Load Hours
Load Factor
Annual Off-Take
Capacity Factor
Levelised
Average
USD/MWh PKR / kWh USD/MWh PKR / kWh
7,8
0,62
7,8
0,62
128,9
10,28
129,3
10,32
5,8
0,46
5,8
0,46
42,7
3,41
31,9
2,54
185,2
14,78
174,8
13,95
MW
h
%
MWh
%
Plant Efficiency (Net)
%
Fuel Consumption - HFO
Fuel Consumption - LFO
Fuel Consumption - Gas
Lubes Consumption
g/kWh
g/kWh
MMBtu/MWh
g/kWh
Average
195,0
5 256
100,0 %
1 024 920
60,0 %
195,0
5 256
100,0 %
1 024 920
60,0 %
45,8 %
45,3 %
182,6
0,0
0,0
0,7
184,3
0,0
0,0
0,7
Investment Summary
Capital Expenses
EPC Contract ESC
Taxes and Duties
O&M Mobilisation
Land and Infrastructure
Independent Engineer
Other costs
Staff Housing Colony
Non EPC costs
Start-Up and utilities
Legal, Lender's and Consultants Cost
Insurance
Emergency/safety spare parts off-shore
Development costs
Other costs
Other costs
Other costs
Other costs
Project Contingency
USD k
155 059
9 084
2 750
1 651
0
0
1 675
3 244
%
67,0 %
3,9 %
1,2 %
0,7 %
0,0 %
0,0 %
0,7 %
1,4 %
USD/kW
969,12
56,78
17,19
10,32
0,00
0,00
10,47
20,28
922
0
2 393
0
1 964
0
0
0
0
0
0,4 %
0,0 %
1,0 %
0,0 %
0,8 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
5,76
0,00
14,96
0,00
12,27
0,00
0,00
0,00
0,00
0,00
0
0
0
0,0 %
0,0 %
0,0 %
0,00
0,00
0,00
0
0
0
4 200
26 282
0,0 %
0,0 %
0,0 %
1,8 %
11,4 %
0,00
0,00
0,00
26,25
164,26
231 415
100,0 %
1 446,34
Other costs
Working Capital
Fuel and Lube Storage
Other costs
Other costs
Debt Service Reserve
Financing Charges and Fees
Interest During Construction
TOTAL PROJECT COST
Financing
%
2,42%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
Base interest rate
Spread
Total interest rate
15,50%
3,00%
18,50%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
Senior Loans
Direct Investment
Shareholder Loan
3rd Party Sub-Loan
Total Financing
75,00%
25,00%
0,00%
0,00%
100,00%
Loans
Local Loan
0
3rd Party
Sub-Loan
Equity
Total
Financing
57 854
231 415
USD k
173 561
0
0
0
0
Years
Years
Years
Years
2,0
0,0
10,0
12,0
2,0
0,0
10,0
12,0
2,0
0,0
10,0
12,0
2,0
0,0
10,0
12,0
2,0
0,0
10,0
12,0
%
%
%
%
15,5 %
0,0 %
3,0 %
18,5 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
0,0 %
Minimum
Average
Year 1
Times
Times
Times
Gearing
1,37
1,46
1,37
2,0
0,0
10,0
12,0
2,0
0,0
10,0
12,0
2,0
0,0
10,0
12,0
2
1
1
1
1
0
0
0
0
Repayment Type (1 or 2)
(1=E/P;2=Mortgage)
PSRA and POA (months)
Year 1
L/C PSRA demand
4,5
Working capital loan
Interest Rate
Commitment Fee
WC loan utilization
17,50% Enable
Working Capital1Loan
Enable Working Capital Loan
0,00% Disable Working Capital Loan
100,00%
0,00%
8,40%
Debt
Equity
Ratio
USD k
177 249
9 084
2 750
1 651
0
0
1 675
3 244
922
0
2 393
0
1 964
0
0
0
0
0
0
0
0
0
0
0
4 200
26 282
231 415
18 466 878
Operating expenses
Variable costs
Variable O&M fee
Chemical costs for water treatment
Lube oil cost
Total Variable O&M cost
Fixed costs
Fixed O&M fee
Insurance cost
Chemical costs for water treatment
General and administration cost
Total fixed cost
EUR/MWh
30,00
5,0 %
6,0 %
Operation
Corporate tax rate
Minimum tax
Carry-forward allowed
Dividend tax rate
0,0 %
0,0 %
5
Years
7,5 %
USD/MWh
6,08
0,38
1,32
7,77
EUR k / year PKR k / year USD k / year
2 352
2 393
0
96 136
1 205
3 557
5 950
Working capital
Receivables
Capacity Charges
Energy Charges - Var O&M
Energy Charges - Fuel
Sales Tax on Fuel
30
30
30
15,00%
Days
Days
Days
%
Payables
Variable Charges
Fixed Charges
Fuel Charges
30
30
0
Days
Days
Days
Fuel Inventory
Advance payment to fuel supplier
Lubes Inventory
Operating Account
Construction
Import duty on plant & equipment
With-holding tax on local part of EPC
PKR/MWh
30
0
30
110%
Days
Days
Days
of next month
Fuel and lubes
Shareholder
Loan
Construction Period
Additional Grace Period
Repayment Period
Loan Tenor
Debt Service Coverage Ratio
2,0
0,0
10,0
12,0
Taxes and Duties
Facility
Base Rate
Swap Fee
Spread
Total Interest Rate
2,0
0,0
10,0
12,0
Project cost
USD k
EUR k
EPC Contract
22 191 120 542
Taxes and Duties
O&M Mobilisation
Land and Infrastructure
Independent Engineer
Other costs
Staff Housing Colony
Non EPC costs
Start-Up and utilities
Legal, Lender's and Consultants Cost
Insurance
Emergency/safety spare parts off-shore
Development costs
Other costs
Other costs
Other costs
Other costs
Project Contingency
0,00%
Other costs
Working Capital
Fuel and Lube Storage
Other costs
Other costs
Debt Service Reserve
Financing Charges and Fees
Interest During Construction
Total Project Cost
1186,74 USD/kW
173 561
57 854
0
0
231 415
0
0 PKR k
Construction Period
Grace Beyond Construction
Repayment Period
Loan Tenor (years)
Interest earnings
Interest Earnings on Cash
Interest Earnings on PSRA
USD k
3rd Party Sub-Loan
Up-front fee
Commitment fee
Annual fixed charge
Investment Returns
Shareholder Loan
Tax depreciation (1=S/L; 2=Reducing balance) 2
Reducing Balance
Initial tax depreciation
50,0 %
Reducing balance tax depreciation
10,0 %
© Wärtsilä Project & Trade Finance - March 29th 2011
56 000 PKR/ton
43,04 MJ/kg
Lube oil price
Lube oil density
Lube oil consumption
134,00 PKR/litre
0,89 grams / litre
0,70 g/kWh
Base
25714,57
Plant performance
Plant capacity factor
60,00%
Macro workings
Year
USD k
USD k
HFO price
Lower heating value
173 561
57 854
0,75
Average
41 070
57 854
0,42
Target Equity IRR
ROE component
15,00%
not linked not linked Rs/kW/h
Plant net output
Plant net heat rate (EPC new and clean)
Sludge
Ageing
Simple IRR
IDC OK
15,9%
Year 1-5
0,50%
Average Plant net life-cycle heat rate
46,99%
195,00 MW
7 662 kJ/kWh
2,00%
Year 6-10 Year 11-15 Year 16-25
1,00%
1,50%
2,00%
45,33%
7 941,31 kJ/kWh