A2Z Punjab Biomass Projects

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In January 2009, A2Z Maintenance & Engineering Services Limited (A2Z) signed memorandum of understanding with Fazilka Cooperative Sugar Mills Limited,Morinda Cooperative Sugar Mills Limited and Nakodar Cooperative Sugar Mills Limited to set up at each site 20MW biomass (bagasse) based cogeneration power plants within their respective sugar mills in the state of Punjab. The concession was for a period of 15 years. The respective sugar mills had granted a lease to the Company over land measuring 5 acres for each of the cogeneration projects for a period of 15 years. The EPC for the plant had been awarded to A2Z Powercom, a group company. The boilers would be sourced from Sichuan Chuanguo Boiler Co. Ltd.(China) and Turbines from Qingdao Jieneng Power Station Engineering Co. Ltd. (China). The key Fuel would be the Bagasse from the sugar mills; the other fuels during non-peak season like cotton stock,rice husk would be procured locally from Multi Fuel Management Pvt. Ltd.Water requriement would be met by water supplied by the sugar mills from deep bore wells located in the sugar mills’premises. The MoUs granted A2Z concessions for a period of 15 years over the projects on a BOOT basis. Upon the completion of the concession period, A2Z had a right of first refusal on fresh terms and conditions, which were required to be informed to A2Z six months prior to the expiry of the concession period. If A2Z refused to accept the new terms, the sugar mills were restricted from offering more favorable terms to any third party. A2Z Maintenance & Engineering Services Limited (A2Z) had been awarded these biomass projects on a competitive bidding basis by the Punjab State Federation of Cooperative Sugar Mills Limited. The bidding criteria was the highest revenue share with the Sugar Mills - 7% for Fazilka, 9% for Morinda and, 7% for Nakodar. The percentage of revenue shared by A2Z with the sugar mills was subject to an increase of 0.5% after the completion of the 5th year of the concession period and a further 1% increase if the power generation exceeds a specified capacity. A2Z was required to provide steam and power from the three bagasse-based cogeneration projects during the crushing season free of cost to the three sugar mills. A2Z would provide aggregate power of approximately 8.8MW to the three sugar mills during the crushing season. Any surplus power that it generated could be sold to third parties on a merchant basis or to the Punjab State Electricity Board through a PPA. During the off-season, A2Z could sell the entire power generated to third parties. In April 2010, A2Z had entered into memoranda of understanding with Punjab Energy Development Agency (“PEDA”) in respect of the projects in Fazilka, Morinda and Nakodar whereby PEDA had agreed to assist the Company in obtaining statutory clearances and facilitate the execution of the PPAs for such projects.A2Z had executed PPAs with a private party for the sale of power generated from the cogeneration projects at Fazilka, Morinda and Nakodar for a ten year period from April 1, 2011, which was extendable by mutual consent. As per the PSERC (State Regulator) tariff order for FY2011 the applicable rates for biomass power projects was US$ 0.122/Unit (INR 5.49/unit @45INR/USD).A2Z had also represented its case for carbon credits for the project, and UNFCC was currently validating the project.The financial benefits of the revenue obtained by selling of the CERs was expected to improve the Equity IRR of the project. The estimated cost of the 3 projects were USD 54.7 million (INR 2460 mn @45 INR/USD). Financial closure took place in March 2010. The debt to equity ratio for the project was 72:28. Financing comprised of a 9-year term loan of USD 39.5mn (INR 1780 mn) and USD 15.1mn (INR 680mn) sponsor equity. The term loan had a grace period of 2 years and a repayment schedule of 28 quarterly instalments. Yes Bank was the lead arranger (INR 900mn)and the other particpating bank was ICICI Bank (INR