Feasibility Study: Case of a Biomass Project
After the final approval from the board, it will release the funds, so it’s a big step, may be even the biggest. It’s not just a rubber-stamp process; the board will look very carefully at the feasibility study prior to making a decision.
– Kimball Hansen
ISGEC Heavy Engineering Ltd., a diversified global engineering company based in India was established in 1933. It was a INR2434 crore multi-product, multi-location public company providing engineering products to customers across 76 countries. It had been ranked 309 in the ET500 listing, 329 in the Fortune India 500 listing and also ranked at No. 198 (Standalone net sales rank) in the Business Standard BS1000 companies list released in March 2012.
The company operated with the following business units – Process Equipment, EPC Power Plants, Boilers, Sugar Plants & Machinery, Mechanical & Hydraulic Presses, Steel & Iron Castings, Contract Manufacturing, and Trading.
The major target sectors for the company were Power, Oil & Gas, Automobiles, Fertilizers, Sugar and Defense. With a team of over 4000 employees, including 700 qualified engineers and over 450 designers, the company had its manufacturing plants and design offices spread across India in Haryana, Uttar Pradesh, Gujarat, Tamil Nadu and Maharashtra................
New Project
In 2013, the company had a proposal of a Project to install 1220 TPH, 109 bar (g), 540 +/- 5 degree Celsius Bagasse/ Coal fired Traveling Grate Boiler for customer: M/s Biomass Energy, S.A, Guatemala at their site at Guatemala.
Salient features of the contract were as follows:
• The contract was signed on November 29th 2013.
• The contract price was $361904 (Three Lakhs Sixty One Thousand Nine Hundred Four Dollars) approx. INR2.60 crore @ $1 = INR56.93) on CIF Guatemala Port (Puerto Quetzal) Basis.
• Time schedule for Completion of shipment was within 15 months from the effective date of contract i.e., completion of shipments by February 2015 on CIF Guatemala (Puerto Quetzal) basis.
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Technical Specification of the Project
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1. Codes and standards: The design, manufacture, testing and performance of the conveyors were to comply with the requirement of applicable International/ Other recognized standards.
2. Control Philosophy for the system: All necessary interlocks and sequences as required for power plant was to be generated through Purchase’s DCS.
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Evaluation of Project Investments
The project manager used Discounting Criteria to evaluate returns from project investments. The corporate borrowing cost in India during 2013-14 was around 8%, risk free rate on 91day. T bills was 6% (source RBI) while the cost of equity was 15.28% (risk premium 9.28%)...........
Factors driving Power Plant Costs:
The major factors determining the costs of building and operating power plants included:..................
Environmental Control Technology
To comply with multiple EPA regulations, ISGEC planned to install following controls for sulfur dioxide (SO2), nitrogen oxide (NOx), mercury and other hazardous air pollutants:
• A dry flue gas desulfurization system (DFGD), commonly known as a scrubber, reduced sulfur dioxide emissions
• Fabric filter (FF), commonly known as a baghouse2, could physically trap and filter particulate matter
• .............
Experience where it Counted
The company’s services ranged from global, corporate-level systems to multiple facility projects to local, facility-level programs and included industrial hygiene, audits and assessments, integrated EH&S management systems, outsourcing, and other comprehensive sustainability services................
Assignment Questions
I. Should ISGEC go ahead with the project on the basis of feasibility report?
II. ...............
Exhibits
Exhibit I: Electric Power Consumption in Guatemala (in Kwh)
Exhibit II: Investment cost of the Project
Exhibit III: Cash Flows from Biomass Project
Exhibit IV: Other Financials (in INR crore)
