The project is being developed by Simkosh Hydropower Pvt. Ltd. The Project area lies in the Dhaulagiri Rural Municipality in Myagdi district of Nepal, 218 km west of Kathmandu. The proposed Simkosh Khola Hydroelectric Project has been planned as a simple Peaking (1 hr) Run-of the-River (PRoR) type project. It will have installed capacity of 5.32 MW. The estimated project timeline is 4 years (1 years development stage and 3 years construction phase). The anticipated date of project operation is January, 2023.

Salient Features of the Proposed Project:

1 Name of Project Simkosh Khola Hydroelectric Project
2 Design Head 375 - 400 m
3 Design Discharge 1.5 m 3 / sec
4 Installed Capacity 3.45 MW and proposed to upgrade to 5.32 MW (2 x 2.66 MW) for 2 hours peaking storage
5 Coordinate 83°36' E to 83°38' 25" E and 28° 10' 20" N to 280 11' 10"N
6 Total Project Cost USD 8,315,000.00 (Approx)
7 Dry Season Energy 11.31 GWh
8 Wet Season Energy 21.88 GWh
9 Average Annual Energy after Outage 33.19 GWh (Approx)
Estimated Cost Features of the project
  • Total project cost is estimated as USD 8,315,000.00.
  • Project cost per kW in USD 1,460
  • Loan portion is estimated as USD 6,236,000.00
  • Total equity amount is estimated as USD 2,079,000.00. (Anticipated equity from abroad is not less than USD 1,039,500.00 )
  • Revenue per MW USD 316,170
  • Proposed Loan Equity ratio 75:25 percent
Estimated Financial Indicators of the project:
  • Internal Rate of Return (IRR) 14.7%
  • Return on Equity (ROE) 24.84%
  • Debt Service Coverage Ratio (DSCR) 1.75 times (185%) in twelve years' average
  • Interest Service Coverage Ratio 7.26 times (726%) and;
  • Payback Period 5.77 years. which is amongst the lowest in Nepal.
Estimated return for the Developer in '000 USD

The proposed project is located in remote area with no settlements upstream of the intake, thus no adverse social impacts are anticipated during project implementation. The project envisages special capacity building activities and trainings for the local residents to enable them to get adapted to climate changes and use appropriate up to date mitigation/adaptation technologies. These activities will be carried out under Reserve Trust Fund, established by project. Estimated 133,875 kg CO 2 e will be monthly avoided, in terms of project lifeline that will result in 48,195 tonnes CO 2 e.

Development Stage

The key activities in the development stage of the proposed project and their status are presented in Table 2 below.

S.N

Activity/Item

Prerequisites

Status

a)      

Identification of the Project

Study and Field visit

Completed

b)      

Survey License

Field Visit and Desk Study Report

Obtained

c)      

Feasibility Study

Survey, feasibility, Design Study Report

Completed / Under review

d)      

Detail Design

Detail Engineering Report

Ongoing. Expected to be completed within 3 months

e)      

Clearances: Environmental, Forest

IEE Studies

Ongoing

f)       

PPA with NEA

Agreement:

Applied to Nepal Electricity Authority. Expected to enter into agreement within next 3-6 months. Draft PPA under review.

 

g)      

Financial Closure

Agreements/Contract

Letter of Intent received from Machhapuchchhre Bank Limited (MBL)

h)      

Preconstruction Activity

-    Land Acquisition

-    Approach Road Construction Contract

Land identified and obtained

Contract signed with contractor for Approach Road. Roard construction will be initiated within this FY 2075/076

i)        

IPO (Initial Public Offering)

-  SHPL has to apply for Public Limited

Under documentation

Return and Future Investment

The financial analysis assumes the estimated dividend of 10 to 25% on equity from the following year of operation. The return on equity will go as high as 35% after 13th years of operation. Similarly, the amount received from the IPO approximately USD 1,800,000.00 will be invested in the next similar or higher capacity project.

Financial Analysis

The debt and equity ratio is proposed as 75%:25% with average interest rate of 10% and other financial charges.

Key Assumptions

The following table presents key assumptions used in financial model. The total project cost was derived based on the feasibility study outputs.

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Parameters

Assumptions

1.      

Installed Capacity

5320 KW

2.      

Project Cost data

Estimated based on the prevailing practices and unit costs

3.      

Energy data

As per the Guidelines of Department of Electricity Development using various methods in section 3 of Project Definition Report

4.      

Energy rate

As per NEA PPA’s policy:

· Dry Season Rate USD 0.075[1] Per kWh

· Wet Season Rate USD 0.04 Per kWh

· Peak Period Rate USD 0.08 Per kWh

· Annual Escalation @ 3% per annum for 8 years

5.      

Price Increment in energy rate for 8 years    (after COD)

3%

6.      

Loan Equity ratio

75:25

7.      

Interest rates ( NPR + USD )

Local Financial Institutions = 12%

8.      

Loan repayment period

12 years

9.      

Loan Management Fees

1% (only for Local Financial Institutions)

10.   

Other Bank Charge

0.15% of outstanding loan /year (only for Local Financial Institutions)

11.   

Operation & maintenance cost

3% yearly increment

12.   

Tax holiday applies

first 10 years 0%, next 5 years 10% & 16-30 years 20%

13.   

Royalty

2% of revenue + USD 0.88/KW per year for first 15 years and thereafter 10% of revenue +USD 8.85/ kW per year

14.   

Loan Drawdown

30% in first year, 40% in second year and 30% third year

15.   

Staff Bonus Provision

2%

16.   

Discount factor (Bank Interest Rate)

10%

17.   

Depreciation rate

3.33 % for 30 Years

18.   

Machine replacement cost 5% of Machinery (Every 5 Years)

Financial Model Key Outputs

The outcomes/outputs of the financial model are presented below.

SN

Outputs

Value

Remarks

1

IRR (Internal rate of return)

14.76%

2

ROE ( Return on Equity)

23.84%

3

NPV (Net Present Value )

3,629.86

Amount in USD ,000

4

Cost per MW

1,563.00

Amount in USD ,000

5

BC Ratio (benefit Cost Ratio)

1.52

Ratio

6

Payback Period –Simple

5.77

Years

7

Payback Period – Discounted

8.08

Years

8

Average BEP (10 Years BEP Sales)

76%

9

Cost Sensitivity (Incensement  up to )

52%

10

Revenue sensitivity (Decrease up to)

27%

11

DSCR (Debt Service Coverage Ratio) In 12 Years Average

1.75

Times

12

ISR (Interest Service Ratio)

7.26

Times

13

Revenue Per MW

316.17

Amount in USD ,000
Debt/Equity Cash Flows

Debit/Equity Cash Flows table is presented in Annex 1 of this report. Equity Share Capital of USD 2,080,000.00 will be the same for 12 years. The bank loan will cleared by year 12. Provision for Dividend for the first two years is estimated as USD 208,000.00, will reach USD 312,000.00 and keep constant for 10 years and will be USD 520,000.00 in 13th year of operation. The reserves and net asset of the company (Shareholder's Fund) will be USD 7,527,000.00 and USD 9,627,000.00 respectively by the end of the loan repayment period (13th year).

Income and Expenditure

Projected Income and Expenditure Statement is given in Annex 2 of this report. Gross Income will constitute the income from the Sale of Electricity only and is estimated as USD 1,682,000. 00 in the first year of operation and will reach USD 2,086,000.00 by the end of Loan repayment period (13th year).

Conclusions

The proposed project presents technically sound and commercially viable activity supported with following factors:
· Technically proven technology with experienced management team
· Low construction cost compared to other similar initiatives in the country
· Legal provisions for commercial operation: fixed PPA wholesale rates with higher peak season unit costs
· Financially attractive and viable indicators even with changes in cost, interest rates and revenues up to 15%
· Minimal environmental and social impacts due to the project implementation; strong mitigation activities

Annex 1: Board and Management Team Currently, the SHPL is managed by a group of four dynamic and dedicated professional Board Members namely Mr. Prakash Upadhyaya as Chairman, Mr. Indralal Sapkota, Mr. Laxminath Parajuli, Mr. Surya Prasad Adhikari as board members. Dr. Yadav Pandit and Mrs. Sunita GC is the proposed Board Member in 7 members. One Board member will be from the Independent Base as required by the Company MoA and AoA. Mr. Adhikari is the managing Director of the Company and is leading the five members Project Team. Proposed five members of the management's team have already illustrated their expertise and commitment in successful implementation of the 1.5 MW Theule Khola Hydroelectric Project owned and operated by Barahi Hydropower Public Limited.

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Name

M/F

Qualification

Experience

 

Proposed Position /Responsibilities

1.               

Surya Prasad Adhikari

M

MSc Degree in Electronic System and Engineering Management

·  22 years of experiences in Study, Design, Development/Execution, Commissioning, Operation of Hydropower projects.

·  Study/design of over 50 hydropower projects among them 5 are executed  and has over twelve years of experience as Project Manager/Chief Executive Officer in Hydropower Companies.

Managing Director:

-  Overall management of the project study, development and implementation.

-  Planning, Design, Development and Operation

-  Coordination with relevant bodies and stakeholders

2.               

K. Sharma

F

M.Sc. in Hydraulic Engineering UNESCO-IHE, Institute for Water Education

·  25 years actively working in the field of hydropower development.

·  14 year working at NEA: organizing and directing works related to the implementation of 10 -100 MW hydro power projects; preliminary studies, pre feasibility, detail design, IEE etc

Director, Planning, Monitoring and Evaluation

-  Planning, Design, development of Monitoring and Evaluation systems

-  Reporting on progress

-  On field monitoring

3.               

N. Paudel

M

Degree on Chartered Accountancy

·  18 eighteen years of experience in financial projections, feasibility preparation, project evaluation in hydropower sector;

·  Principal consultant of Commercial Banks of Nepal

Financial Advisor

-  Project Evaluation, Cost control

-  Due -Diligence

4.               

S. Dhakal

M

Degree on Chartered Accountancy

·  9 years of Professional Experience in Accounting Field/Auditing of more than 100 companies in Nepal and India.

Director, Account, Finance and Logistics

-  Accounting, Financial Management

-  Budget control

5.               

To be Hired (preferably female)

M

MSc in Hydropower

·  15 years undertaking design and management of hydropower projects.

Director, Project

-  Project Management, Scheduling, Design Control/Design Review, Quality Control


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Sources of Fund

0 Year

/COD

1

2

3

4

5

6

7

8

9

10

11

12

13

1

Shareholders Fund

Equity Share Capital

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

Reserve and Surplus(From P/L )

-

272

613

922

1,304

1,758

2,293

2,912

3,620

4,423

5,270

6,050

6,886

7,547

Total

2,080

2,352

2,693

3,002

3,384

3,838

4,373

4,992

5,700

6,503

7,350

8,130

8,966

9,627

2

Loan Fund

Bank loan

6,235

5,941

5,617

5,262

4,872

4,444

3,973

3,456

2,888

2,264

1,579

827

(0)

-

Others Loan

-

-

-

Total

6,235

5,941

5,617

5,262

4,872

4,444

3,973

3,456

2,888

2,264

1,579

827

(0)

-

Total Liabilities

8,315

8,293

8,311

8,264

8,256

8,282

8,346

8,448

8,589

8,767

8,930

8,957

8,966

9,627

Application Of Funds

1

Fixed Assets

8,315

8,315

8,043

7,770

7,498

7,320

7,042

6,763

6,484

6,206

6,022

5,738

5,455

5,172

Less Depreciation

272

272

272

272

279

279

279

279

279

283

283

283

283

Net Block

8,315

8,043

7,770

7,498

7,226

7,042

6,763

6,484

6,206

5,927

5,738

5,455

5,172

4,888

Current Assets (CA)

-

458

748

1,078

1,343

1,552

1,895

2,276

2,695

3,152

3,503

3,938

4,237

5,392

Receivable

-

195

201

207

212

218

224

230

236

242

242

242

242

242

Cash and Bank Balance

-

263

547

871

1,130

1,334

1,671

2,046

2,459

2,910

3,262

3,696

3,995

5,151

Less Current Liabilities(CL)

-

208

208

312

312

312

312

312

312

312

312

436

442

654

Current Liabilities (Ret Money)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Provision for Dividend

-

208

208

312

312

312

312

312

312

312

312

312

312

520

Provision for Tax

-

-

-

-

-

-

-

-

-

-

124

130

134

2

Net Working Capital(CA-CL)

-

250

540

766

1,031

1,240

1,583

1,964

2,383

2,840

3,191

3,502

3,794

4,738

Total Assets

8,315

8,293

8,311

8,264

8,256

8,282

8,346

8,448

8,589

8,767

8,930

8,957

8,966

9,627

Amount in USD x000

Particulars

1

2

3

4

5

6

7

8

9

10

11

12

13

Gross Income from Sale of Electricity

1,682

1,733

1,783

1,834

1,884

1,935

1,985

2,036

2,086

2,086

2,086

2,086

2,086

Gross Income

1,682

1,733

1,783

1,834

1,884

1,935

1,985

2,036

2,086

2,086

2,086

2,086

2,086

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

291

299

308

318

327

337

347

358

368

379

391

402

414

Interest on Bank Loan

582

553

521

486

448

406

359

308

253

191

124

50

-

Royalty Paid to Government

38

39

40

41

42

43

44

45

46

46

46

46

46

Depreciation of the Assets

272

272

272

272

279

279

279

279

279

283

283

283

283

Other Bank Charge (0.15% of OS loan)

9

8

8

7

7

6

5

4

3

2

1

0

-

Total Expenses

1,192

1,173

1,150

1,125

1,103

1,071

1,035

994

949

903

845

782

744

Net Profit before tax

490

560

633

709

781

864

950

1,041

1,137

1,183

1,241

1,304

1,342

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonus to Staff 2% of Profit

10

11

13

14

16

17

19

21

23

24

25

26

27

Profit After Bonus Provision

480

549

620

695

766

847

931

1,020

1,114

1,160

1,216

1,278

1,315

Tax 20% (10 yrs Tax Holiday, 10-15 yrs 10% and from 16th year 20%)

-

-

-

-

-

-

-

-

-

-

124

130

134

Profit after Tax

480

549

620

695

766

847

931

1,020

1,114

1,160

1,092

1,148

1,181

Dividend to Equity Share holders

208

312

416

416

416

416

416

416

416

458

458

520

520

Profit For Current Year (After Dividend)

272

237

204

279

350

431

515

604

698

702

634

628

661

Reserve Transfer to Balance sheet

272

237

204

279

350

431

515

604

698

702

634

628

661

Amount received from IPO

 

1800

1800

1800

1800

1800

1800

1800

1800

1800

1800

1800

1800

Total Reserve for Investment

272

2037

2004

2079

2150

2231

2315

2404

2498

2502

2434

2428

2461

Proposed Rate of Dividend (%)

10%

15%

20%

20%

20%

20%

20%

20%

20%

22%

22%

25%

25%

Equity Capital

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

2,080

Amount for Dividend

208

312

416

416

416

416

416

416

416

458

458

520

520