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 

Below are my comments:

1. If the range of PLR at time of investment decision was 11.00% 

to 12.00%, 11 % is the conservative benchmark. How can the PP 

consider an average of 11.5% as conservative as stated in the PDD?

2. How come PLR which is a pre-tax benchmark compared against Post 

tax equity IRR.

3. How can a comparision of PLR and EQUITY IRR be considered 

appropriate?? This is absolutely incorrect. PP to provide 

supporting evidence for such calculation and comparison logic!
Post tax PLR must be compared against Post tax Project IRR.

Guidance no. 12 states:
In cases where a benchmark approach is used the applied benchmark 

shall be appropriate to the type of IRR calculated. Local 

commercial lending rates or weighted average costs of capital 

(WACC) are appropriate benchmarks for a project IRR. 

Required/expected returns on equity are appropriate benchmarks for 

an equity IRR. How can the PP make such a grave mistake? I am sure 

PP is not financially unaware and is into business with all his 

mind.

4. How come the PP has referred to actual cost paid to the 

manufacturer of WTG (as referred on page 13 of PDD) as this costs 

will not be available at the time of investment decision??
I am sure the PP/consultant will now back create forge offer 

documents to misguide the DOE. DOE is requested to critically 

examine the offer documents presented by interviewing the 

manufacturer and cross verifying the same from documents from the 

manufacturer.

5. The Plant Load Factor stated as 27.15% is not reasonable and 

seems to be less for demonstrating and passing the additionality 

test. DOE to compare the PLF from the real quotations/offer 

documents provided by the manufacturer. Also check the actual PLF 

in the wind farm during site visit.

6. What is Overhead costs? This is totally absurd. There is no 

such overhead costs and should be removed from the cash outflow. I 

a sure DOE is validating other similar wind projects and is aware 

that this cost shown is not appropriate. Also see similar wind 

projects which are registered. How can the PP try to misguide the 

DOE by including such false things in the financials?

7. What is Scheduling and System Operating Charges (INR
per day) accounted for?? Does the PP actually pay these costs? If 

yes, provide the proof.

8. 5% O&M cost has been considered by the PP. This is complete 

nonsense! I am sure the supporting evidences are falsefied! DOE is 

being misguided. Check the TNERC tariff order for a realistic O&M 

cost. It cannot be more than 1.1% as stated in the tariff order as 

well. Note this indicative O&M cost has been the same since the 

previous tariff order dated 15/05/2006. DOE to cross check the 

actual purchase orders as received by the manufacturer and not as 

supplied by the PP which I am sure is forged.

9. PP has considered a project cost of INR 191.48 million which is equivalent to INR 63.6/MW. This is high as compared to the tariff order which indicates a cost of INR 53.5/MW. How is this justified??

10. How 2% of project cost can be considered as land cost? DOE to check the actual land cost as well. I am sure it will be less than 0.5 million.

11. PP has considered "Loan Processing Fee" of 1.0% of loan amount equivalent INR 1.48 million. How can this be considered as part of investment analysis?? Refer Guidance 9 Guidelines on the assessment of investment analysis. It is totally incorrect to consider such costs in investment analysis.

12. 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.


 

Below are my comments:

1. If the range of PLR at time of investment decision was 11.00% to 12.00%, 11 % is the conservative benchmark. How can the PP consider an average of 11.5% as conservative as stated in the PDD?

2. How come PLR which is a pre-tax benchmark compared against Post tax equity IRR.

3. How can a comparision of PLR and EQUITY IRR be considered appropriate?? This is absolutely incorrect. PP to provide supporting evidence for such calculation and comparison logic!
Post tax PLR must be compared against Post tax Project IRR.

Guidance no. 12 states:
In cases where a benchmark approach is used the applied benchmark shall be appropriate to the type of IRR calculated. Local commercial lending rates or weighted average costs of capital (WACC) are appropriate benchmarks for a project IRR. 

Required/expected returns on equity are apropriate benchmarks for an equity IRR. How can the PP make such a grave mistake? I am sure PP is not financially unaware and is into business with all his mind.

4. How come the PP has referred to actual cost paid to the manufacturer of WTG (as referred on page 13 of PDD) as this costs will not be available at the time of investment decision??
I am sure the PP/consultant will now back create forge offer documents to misguide the DOE. DOE is requested to critically examine the offer documents presented by interviewing the manufacturer and cross verifying the same from documents from the manufacturer. Hope you haven't forgotten the rejection of Grace wind project.

5. The Plant Load Factor stated as 27.15% is not reasonable and seems to be less for demonstrating and passing the additionality test. DOE to compare the PLF from the real quotations/offer 
documents provided by the manufacturer. Also check the actual PLF in the wind farm during site visit.

6. What is Overhead costs? This is totally absurd. There is no such overhead costs and should be removed from the cash outflow. I am sure DOE is validating other similar wind projects and is aware that this cost shown is not appropriate. Also see similar wind projects which are registered. How can the PP try to misguide the 
DOE by including such false things in the financials?

7. What is Scheduling and System Operating Charges (INR per day) accounted for?? Does the PP actually pay these costs? If yes, provide the proof.

8. 5% O&M cost has been considered by the PP. This is complete nonsense! I am sure the supporting evidences are falsefied! DOE is being misguided. Check the TNERC tariff order for a realistic O&M cost. It cannot be more than 1.1% as stated in the tariff order as well. Note this indicative O&M cost has been the same since the previous tariff order dated 15/05/2006. DOE to cross check the actual purchase orders as received by the manufacturer and not as supplied by the PP which I am sure is forged.

9. PP has considered a project cost of INR 191.48 million which is equivalent to INR 63.6/MW. This is high as compared to the tariff order which indicates a cost of INR 53.5/MW. How is this justified??

10. How 2% of project cost can be considered as land cost? DOE to check the actual land cost as well. I am sure it will be less than 0.5 million.

11. PP has considered "Loan Processing Fee" of 1.0% of loan amount equivalent INR 1.48 million. How can this be considered as part of investment analysis?? Refer Guidance 9 Guidelines on the assessment of investment analysis. It is totally incorrect to consider such costs in investment analysis.

12. 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.