Bundled wind power project in Western India
Host party(ies) India
Methodology(ies) AMS-I.D. ver. 16
Estimated annual reductions* 12,172
DOE/AE TÜV NORD CERT GmbH
Period for comments 03 Sep 10 - 02 Oct 10
PP for which DOE have a contractual obligation Omprakash & Co.
The operational/applicant entity working on this project has decided to make the Project Design Document (PDD) publicly available directly on the UNFCCC CDM website.
PDD PDD (857 KB)
Submission of comments to the DOE/AE Compilation of submitted inputs:
Please consider below comments in validation:

It is a well known fact that the wind projects are mainly installed considering CDM revenues and offsetting of tax liability of the company as a result of accelerated depreciation of 80%.

PPs cleverly do not consider the accounting tax offsetting in their companies while calculating the IRR. This is evident from the recently registered projects and those requesting registration. It is seen from the projects in pipeline that wind projects do not present the actual financials while proving additionality and hence abusing the Clean Development Mechanism.

The DOE is therefore requested to critically analyze how the accelerated depreciation benefit has been taken into account and confirm the accounting of the cash inflows as a result of the negative tax liability in the initial years. DOE should not be misguided by the financial presented by the PP or consultant which are custom made for CDM purposes and not the actual financial considered at the investment decision.

Note that considering cash inflows results in an increase in the IRR making wind projects a profitable venture.

Let me know if you have any queries/clarification.

Yours,
Babloo Singh
Submitted by: Babloo

Investment Barrier
a)	While calculating the Financial Indicator, Project IRR has been considered for Kukreja Development Corporation(Project-1) and O.P. Enterprises (Project-2) while Equity IRR has been considered for Omprakash &Co (Project-3)
-Could the PP explain the reason for taking Equity IRR for Omprakash & Co as even in this project, there is a combination of Debt and Equity in that project as well. 
b)	While calculating the Benchmark, it is mentioned that Benchmark shall be appropriate to the type of IRR Calculated
-Could the PP explain why the PLR has been taken as the Benchmark and not the WACC in Project 1 &2, as the project has financing in terms of both Equity and Debt
-Similarly while calculating the Benchmark for Project-3 the Benchmark has been calculated using the CAPM model, but Equity IRR has been calculated. Following the question(a) , is the PP right in computing the Equity IRR.
c) While calculating the CAPM, for Project 3, Why is the risk free rate based on the weighted average yield on market loans and not on the Central government’s 10 year securities? Since as per the prevalent trade practices, the government securities rate is taken as the interest free rate for determing the CAPM.
d)	Why was BSE 500 index taken for computing the risk premium, instead of BSE power sector indices
a.	Why has the PO (Project owner) not considered the other Indices like BSE 30, BSE 100? What is the effect of these indices on the risk premium?
b.	Why has the PO not considered the NSE (National Stock Exchange) Indices, as that would have given a more robust and efficient face of the market as it would represent a wider face of the market?
e)	What is the basis for computing the Asset beta and the market capital? 
a.	Share price of which index has been considered for determining the market capitalisation (NSE, BSE) and for which period/ date these share prices have been considered. Can this be substantiated with the calculations and the proof of the date on which the market cap was considered?
b.	On what basis the companies have been selected for determining the asset beta, since there are lot of top performing companies in the sector, other than mentioned in the PDD?
f)	Has the PO considered tax holiday benefits while computing the IRR ( 10 year tax holiday in a gap of 15 years for generation or generation/distribution of power)?

CDM Consideration
a)	The PO has not indicated the date of board/management approval for the project.
It is surprising to see that the chronology begins from the date of “PO” and not from the date of Investment decision.
The PDD thus does not indicate if real actions were taken to achieve CDM status for the project post Investment decision.
Submitted by: Sandy


The comment period is over.
* Emission reductions in metric tonnes of CO2 equivalent per annum that are based on the estimates provided by the project participants in unvalidated PDDs