Talwandi Sabo Power Limited

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In December 2009, the 1980MW Talwandi Sabo Power Plant developed by Sterlite Energy under a BOO format, reached financial closure. In July 2008, the Government of Punjab had awarded the tender to Sterlite Energy, a Vedanta Resources Plc. group company, for development of a 1980 MW coal-fired thermal power plant at village Banawala, District Mansa, in the State of Punjab. The project included 3 units of 660 MW each based on supercritical technology. Talwandi Sabo Power Limited (TSPL), was incorporated as a special purpose vehicle by Punjab State Electricity Board (PSEB) to execute the Talwandi Power Project prior to the selection of a developer through a competitive bidding process. In July 2008, Sterlite Energy Limited bagged the project by quoting the lowest bid price of INR 2.86/kWh as levelised tariff for 25 years, in an international competitive bidding process. Sterlite clinched the project from other contenders like Reliance Power (INR 2.88/kWh), Lanco Infratech (INR 2.995/kWh) and Indiabulls Power Services (INR 3.15/kWh).On September 1, 2008, Sterlite Energy completed the acquisition of TSPL and TSPL became a 100% subsidiary of Sterlite Energy. In September 2008, TSPL entered into a long-term PPA with the Punjab State Electricity Board(PSEB) for a contracted capacity of 1,841.40 MW for a period of 25 years from the date of commercial operation of the power plant.The tariff for the sale of power by TSPL to PSEB consisted of a capacity charge, energy charge and an incentive payment on a monthly basis. The capacity, energy and incentive payment was calculated in accordance with the formula set out in the Talwandi PPA. Specifically, the energy charges was to be calculated based on the quoted heat rate and actual costs of coal, including transportation. For each contract year, in the event of at least 80% availability of the contracted capacity at the delivery point, full capacity charges was payable by PSEB to TSPL. Incentive was to be provided for availability exceeding 85% of the contracted capacity for each contract year. In case of availability below 80% of the contracted capacity for any contract year, the capacity charge was payable on proportionate basis in addition to the penalty to be paid by TSPL (as per PPA). In the event PSEB was unable to purchase the entire available capacity from the plant, TSPL had the right to sell such unsold capacity to any third party without losing the right to receive capacity charges from PSEB. As a collateral arrangement, PSEB and TSPL were required to enter into a default escrow agreement for the establishment and operation of a default escrow account in favour of TSPL. Further PSEB would be required to provide an unconditional, revolving and irrevocable letter of credit an amount equal to 1.1 times of the estimated monthly sales. Also as per the PPA, PSEB was to bear the costs of transmission and had entered into an agreement dated May 29, 2009 with PGCIL for turnkey execution of transmission system associated with this project. The total cost of this project was estimated at USD 1925.2 million (INR 93200 million at 48.41 INR/USD). Financial close took place in December 2009. Though the details of the financing were not known at the time of collection of this information, it was known that TSPL had received an in-principle sanction letter dated October 14, 2009 from State Bank of India for a term loan of USD 516.4 million (INR 25000 million). TSPL intended to finance the project with a debt/equity ratio of 70/30. Towards this, USD 577.6 million (INR 27960 million) was expected to be funded through equity capital contribution. This project was expected to be progressively commissioned with the first unit of 660 MW expected to be commissioned in the fourth quarter of fiscal 2013 and all the three units were expected to be progressively commissioned by the second quarter of fiscal 2014. The total land requirement for the project was 2,387 acres. The estimated water requirement for this project was 8,000 cubic meters per hour and was expected to be sourced entirely from the Bheni distributory of the Kotla branch of Sirhind canal which was at a distance of 38 km from our project site. The coal requirement for the project was estimated to be approximately 7.90 mtpa. Mahanadi Coalfields Limited (MCL) had issued a letter of assurance dated August 14, 2008 (“Talwandi LoA”), provisionally assuring TSPL the supply of 7.72 mtpa of Grade "E"coal (Grade F in case of shortage of Grade E coal) from their mines from about December 2011. The supply of coal was conditional upon the execution of the fuel supply agreement with MCL within three months of the expiry of the Talwandi LoA, i.e. by November 14, 2010. The execution of the fuel supply agreement was subject to compliance with the conditions stipulated in the Talwandi LoA, including receipt of necessary approvals, commitment of equity contribution from Sterlite Energy Limiteed (sponsor) and financial closure of the project. To meet the remaining coal requirements for this power plant, TSPL had approached the Ministry of Coal (MOC) to increase the allocation of linkage allotted, which was pending at the time of collection of this information.