When the project is financed 70% by debt, how equity IRR is considered correct financial indicator for the project type and decision making context? DOE should not accept equity IRR; it should go by project IRR only.
The return on equity at more than 18% is very high. RERC has recommended only 16%. The calculations should be disclosed in the web hosted PDD. PP has not explained how Annex 5, EB 62 has been used? If it is default return then the given return is very high and not correct DOE should take it up for validation only after the PDD is re-webhosted with all the calculation for global stakeholder to comment. EB may kindly take note of late this has become a trend and the PPs do not disclose any information and want to share the information only with DOE. In that case, web hosting of PDD can also be stopped.
Escalation of 6% on O&M charges is high. All projects with Enercon windmills have assumed only 5% escalation
DOE should take into consideration only purchase order cost and not offer. Validation manual clearly states that the DOE should use its sectoral and local expertise and financial knowledge in accepting evidence. DOE should know that offer letters are always obtained at higher cost to make the project additional. This is sectoral and local expertise expected of DOE.
The cash inflow should include tax saving due to depreciation (100% not 15% as given in the PDD) and tax holiday. Consultant would have omitted this to make the project additional. The investment is made in 2010-11 and the generation also commences in the same year. Therefore, the cash outflow should be deducted from cash inflow of 2010-11 while calculating the indicator. The project IRR of the project cannot be less than 15%.
Depreciation is not 15%. If accelerated depreciation is not availed then “Generation Based Incentive” available to such projects should be taken into account. Even then in the first year, the project is eligible for 15% + 20% depreciation.
The project IRR for this project will be more than 13.5%. Even if the given ROE is accepted, the WACC for the project will be less than 11%. This project is not additional.