Lanco Mandakini Hydro Energy Private Limited - Phata Bhyung HEP

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In July 2009, the 76MW Phata Bhyung Hydro Electric Power Project, developed by a consortium headed by Lanco Group under a BOOT agreement, reached financial closure. The project (2 units of 38 MW each) was located on the cascade of the Mandakini River, a major tributary of the Alakananda River in the state of Uttaranchal. On May 29, 2006 Lanco Mandakini Hydro Energy Private Limited (LMHEPL) had signed a project development agreement with the Government of Uttaranchal (GoU) that allowed LMHEPL to build, own, operate and maintain this project for a period of 45 years from the date of commissioning of the project (COD). Implementation Agreements (IAs) had also been signed with the government of Uttarakandh for developing these two units. LMHEPL would be required to supply 12.0% of the net deliverable energy (generated energy minus auxiliary consumption and transmission loss) to the State of Uttaranchal free of charge as "royalty". Lanco Mandakini Hydro Energy Private Limited (LMHEPL), the special purpose vehicle incorporated on February 21, 2006 to implement the project, was a consortium of Lanco Group and SMEC India Private Limited. Uttaranchal Jal Vidyut Nigam Ltd. (UJVNL), the state owned agency responsible for the operation, maintenance and construction of Hydro Power Plants in the state of Uttaranchal was appointed by the Government of Uttaranchal for conducting the bidding for this project. The criterion for the award of the project was the highest premium bid by the project developer over and above the upfront minimum premium laid down by the GoU. This minimum premium was set at USD 1.25 million per project for all hydro projects in Uttaranchal. There was no public information on the offers of each bidder, but LMHEPL was declared as the highest bidder and therefore winner of the project. Lanco Hydro would have the option to dispose the power from the Phata-Byung Project, after allowing for the royalty energy, by any of the following mechanisms: * sell power to the UPCL upon such terms as may be mutually negotiated; * sell power to any high-tension consumer within the State of Uttaranchal; * sell power to the local rural grids within the State of Uttaranchal, which are not connected to UPCL’s main grid; * sell power to rural power distribution entities; and/or * sell power to any consumer outside the State of Uttaranchal. As per the concession agreement, the sale of energy generated by the Project would be approved by the Uttaranchal Electricity Regulatory Commission (“UERC”). In case of sale of power to any other consumer not mentioned above, royalty in the form of free power at the rate of 12% of net delivered energy (in case of direct supply to consumers without using Power Transmission Corporation of Uttaranchal Limited (“PTCUL”) or UPCL’s system), would be charged for the first 15 years from COD. In either case, LMHEPL had to pay a royalty of 18% of net wheeled energy or deliverable energy (in case of direct supply to consumers without using PTCUL/ UPCL’s system) beyond the 15th year following COD. The estimated cost of the project was estimated at US$ 107.4 million (INR 5200 mn at 48.41 INR/USD). The Project achieved financial closure in July 2009. The project would be financed with a debt of USD 85.9 million (INR 4160 mn) and equity of USD 21.5 million (INR 1040mn) at a debt/equity ratio of 80/20. A consortium of five banks led by Axis Bank was financing the debt proportion of the project. Civil construction began on the Phata Bhyung project in 2007 and it was expected to be commissioned on FY2013.