FINANCIAL VIABILITY STUDY OF CONSTRUCTING A NEW POWER PLANT OF

ELECTRICITY GENERATION COMPANY OF BANGLADESHI LTD (EGCB)

(AN ENTERPRISE OF BANGLADESH POWER DEVELOPMENT BOARD)

This thesis will be submitted to the Department of Management Information System, University of Dhaka in the partial fulfillment of the requirement for the Degree of Masters of Business Administration.

SUBMITTED BY: MUHAMMAD WAHIDUZZAMAN ID # 60815-08-046 BATCH-8TH DEPT-MIS

The main objective of this study is to analyze the financial and economic viability of constructing a new power plant. The proposed power plant will be a 360 MW Combined Cycle Power Plant with a life cycle of 25 years. The capacity of the proposed power plant to be installed is 360 MW at the site rating. For this range of capacity, one of three types of power plants is ordinarily selected, namely, steam turbine, gas turbine and combined cycle. Generators driven by diesel engines burning natural gas are limited by capacity up to about 10MW due to unit size constraint of gas fuel diesel engine, and therefore, may not be brought in to this comparison. During selection of technology and size from among these types, the available land, available fuels, cooling water availability, construction cost and time, operating cost, grid system available, etc. is taken into consideration. It is also assumed that the required land is available on the bank of a River (Sitalakhya or Meghna) near Dhaka city where there exists good waterways connection of site with sea ports of Chittagong and Mongla and access to power grid is easy. It assumed that, on the basis of all those considerations, a combined cycle power plant is the best option for the proposed power plant.

The capital requirement for implementing the proposed project is estimated to be BDT 27281.11 Million with Foreign Exchange component of BDT 25004.10 Million ($343.95 Million). The total cost includes equipment cost, installation, civil work, freight, testing & commissioning, indirect cost and engineering services. The estimated capital cost is prepared on the basis data collected from currently ongoing such projects in Bangladesh and the Rate Schedule for Civil Works-2007 provided by Power Division, Ministry of Power, Energy & Mineral Resources, Government of Bangladesh, which is adjusted with the current market price. It is assumed that for implementing this project, cost for the foreign portion will be collected from any foreign partner as debt. The local banks will finance part of the 40% of total local cost and the rest of the part of the local cost will be financed by the implementing organization as equity.

The annual generation, fuel consumptions are projected for 70% plant factor throughout the entire 25 years of its life. On the basis of these projection and prevalent practice of BPDB annual costs and revenues are calculated from which the NPV, Financial IRR and discounted payback period is measured. The average rate of electricity of BDT 3.50/kWh and gas price of Tk.79.90/1000 Million SCF is used for those calculations. All these results of financial analysis

indicate that it will financially viable or not to construct the proposed power plant.

After proving itself as financially viable, economic analysis is done by comparing the proposed plant with other options and by analyzing the economic viability. A gas turbine power plant having capacity of 333.6 MW is considered as the only alternative and the most competitive to the proposed combined cycle power plant. It is seen from the economic analysis that though lower in capacity, the gas turbine power plant is costlier than the combined cycle power plant. So the combined cycle power plant of 360 MW can be considered economical.

Sensitivity and scenario analysis is done for measuring the project risk. The proposed power plant projects NPV is very sensitive to changes in plant factor, energy selling rate and corporate tax rate, moderately high sensitive to changes in fuel consumption (combined cycle operation) and fuel cost and fairly insensitive to in fuel consumption (only gas turbine operation), fixed and variable operation and maintenance cost.

Based on the results of scenario analysis it will be check that negative and large NPV is produced in case of worst and best scenario respectively which indicates that in the worst case the project is not financial viable.

After conducting this study it will be concluded the proposal of constructing a new power plant is financially and economically viable or not.