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Ohrid Workshop Financial and Economic Analysis

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Infrastructure Projects Facility
Technical Assistance Window (IPF TA)
Western Balkans
WB4bis-REG-ENE-01
Feasibility Study and ESIA for Elbasan (AL) ‐ Bitola (MK)
400 kV Transmission Line
Project Financial, Economic, Risk and
Sensitivity Analysis
Final Results
Final Workshop in Ohrid, 18 December 2012
#
1
This project is funded
by the European Union
Tasks related to Financial / Economic Component
Deliverables produced under Finance / Economic Feasibility
Study Component
• Economic Assessment
• Financial and Economic Cost Benefit
Analysis
• Risk and Sensitivity Analysis
#
2
This project is funded
by the European Union
Financial / Economic Assessment Report – Content:
The Report covers three elements related to the Financial and
Economic Analysis - important for the Transmission Projects’
implementation:
1. Assessment of Macro-economic Environment in Macedonia and
Albania
2. Review of the Financial Situation of MEPSO and OST
3. Project-specific Cost / Benefit NPV Analysis
The comprehensive Final Report (including the Model)
is now available
This general outline for Financial / Economic assessment
may be easily used in future by MEPSO and OST on any
other projects pursued by the Companies.
#
3
This project is funded
by the European Union
Conclusions from Assessment of Macedonian and
Albanian Economy:
The following main conclusions were arrived at after close
examination of the broader Economic Environment:
1. Economic situation worsened in recent years substantially, mainly due
to unfolding crises in Eurozone, especially in the major trading
partners, such as Greece or Italy. It is also expected that in the short
run the situation will not improve significantly.
2. There is a positive tariff setting regulatory framework supporting
investment in this Project in both Countries;
3. The potential impact from the Project on Albania’s and Macedonia’s
participation in regional electricity exchanges and benefits from it are
expected to be very high.
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4
This project is funded
by the European Union
Conclusions from Assessment of MK/AL Economy:
Over the period of 35 years after its
implementation, this Project may bring
net additional growth in Macedonian GDP
amounting to as much as €39 million,
while in case of Albanian GDP this
positive effect may amount to 43.9
million.
#
5
This project is funded
by the European Union
Conclusions from Assessment of MEPSO’s Finance:
The following Main Conclusions Were Arrived at after Close Examination
of MEPSO’s Financial Standing:
1. 2011/2009 revenues of the Company increased by approximately 20%;
2. Profitability of the Company remains fairly stable, with net profit
increasing by 26.8% in 2011, compared to 2010;
3. Company’s Balance Position increased by approximately 9.7%
between 2010 and 2011;
4. Company’s Equity Base significantly improved with an increase of
28.7% during 2011, mainly due to increase in retained profits. This resulted
in significant improvement of the Indebtedness Ratio;
5. Company has got a three-year tariff approved by ERC covering the
period from 2012 through to 2015. Current tariff already encompasses some
initial provisions for this 400 kV Elbasan-Bitola Interconnector Project;
6. Analysis of forecast obligations from repayment of Debt indicates
Company’s satisfactory ability to meet this obligation
#
6
This project is funded
by the European Union
Conclusions from Assessment of OST’s Finance:
The following main conclusions were arrived at after closer examination
of OST’s Financial Standing:
1. Compared to 2010, revenues of the Company have improved –
revenues enjoyed an increase of 10.8%. Also, the profitability of the
Company remained stable compared to 2010 figures and amounted to as
high as 32.3%, which is high for infrastructure company;
2. Company’s equity base significantly improved with a new share
issuance and asset revaluation during 2011;
3. Company has got a three-year tariff approved by ERE covering the
period of 2012 through to 2014 (based on initial value of assets) as well
as completed asset revaluation exercise, resulting in an increased asset
base, which should facilitate positive tariff amendments in future;
4. Problems with receivables from CEZ Shperndarje are a source of
concern.
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7
This project is funded
by the European Union
F / E Assessment – Cost/Benefits Areas Looked at:
Financial Benefits to Operators Looked at:
Economic Benefits to Economies
Looked at:
Reduced losses (benefit to Operator)
Reduced Losses (to economy)
Reduced unsupplied Energy (to Operator)
Increased generation (=increase of transmission
charges):
Unsupplied Energy (to economy)
Revenues from provision of balancing/ancillary
services for neighbour:
Increased Capacity Margin (to economy) MW:
Increased generation
Increased transits (MWh):
• Extra cost from the project – increased maintenance and
insurance cost
• Increased CO2 emissions from thermal power plants
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8
This project is funded
by the European Union
F / E Assessment – Other Assumptions:
1. Techno-economic:
2. Financial:
Value of unsupplied electricity (=MEPSO’s tariff);
4,73
Discount rate (MKD):
6.6%
Value of unsupplied electricity (= OST’s tariff);
4,71
Discount rate (ALB):
9.4%
Average transit revenue:
0,05
Value of unsupplied electricity (to MKD Economy):
959
Value of unsupplied electricity (to ALB Economy):
1 280
Value of transmission losses (to MKD Economy):
70
Value of transmission losses (to ALB Economy):
60.49
Value of increased capacity (to Economy):
EUR / MWh
Loan maturity:
12 years
Grace period:
3 years
Interest on loan:
2,0%
1 000 000 EUR / MW
Methodology for Project – Specific Assessment:
•
1) All these assumptions, together with physical values from the System Study
Report are included in the Financial / Economic Model.
2) The Financial / Economic Model calculates potential Costs and Benefits from
the Project over a period of 35 years.
#
9
This project is funded
by the European Union
Conclusions from Assessment of Project’s NPV - MKD:
No
Main Indicator
Macedonia
Variant One (single cicuit
line)
Variant Two (double circuit
line)
1
Required investment:
€43.5 million
€60.7 million
2
NPV (for Transmission Operator):
€6.3 million
€1.8 million
3
Simple Payback Period
15.3 years
17.5 years
4
5
Benefit cost ratio
IRR
2.0
12.5%
1.7
7.5%
7
Impact on national Economy
€37.9 million
€37.8 million
Variant One (i.e. Single-Circuit 400 kV line proves to be the best Variant out of
two available, e.g. due to that it:
• Maximizes positive Cash Flows to both MEPSO, and to Macedonian
Economy;
• Indicates a very high IRR – almost twice as high as the Discount
Rate of 6.6%, adopted for the Base Case Analysis;
• Requires almost 50% less of investment and thus carries less
risks associated with investment.
#
10
This project is funded
by the European Union
Conclusions from Assessment of Project’s NPV - ALB:
No
Main Indicator
Albania
Variant 1A (single
cicuit line) – w/o
shunt reactor
Variant 1B (single cicuit
line ) – with shunt reactor
Variant Two (double
circuit line)
1
Required investment:
€21.5 million
€24.6 million
€35.9 million
2
NPV (for transmission operator):
€2.7 million
€1.7 million
-€2.0 million
3
Simple Payback period
10 years
11 years
14 years
4
5
Benefit cost ratio
IRR
2.8
13.9%
2.6
11.8%
2.0
7.6%
7
Impact on national economy
€43.9 million
€42.9 million
€39.4 million
Variant 1A (i.e. Single-Circuit 400kV line) proves to be the best Variant out of two available,
e.g. due to:
•
•
It maximizes positive Cash Flows to both OST, and to Albanian Economy;
•
Indicates a very high IRR – almost 50% higher than the Discount Rate of 9.4%, adopted
for Base Case Analysis;
•
Requires more than 50% lower investment and thus carries less risks associated with
investment.
Variant 1B (i.e. Single-circuit line with a Shunt Reactor) is characterised by a lower NPV (1.7
million) and in general, somewhat less attractive, but still viable financial parameters. After the
final System Study Analysis results, OST has re-iterated the need for a Shunt Reactor.
•
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11
This project is funded
by the European Union
Conclusions from Comprehensive Financial / Economic
Assessment:
The following Summary Conclusions were arrived:
All three elements of Financial / Economic Analysis indicate
numerous clear and quantifiable benefits from Project’s
implementation to both Operators and economies.
Financial standing of both Operators is sufficient for obtaining a
loan.
Variant One, i.e. Single-Circuit 400 kV line from Elbasan to Bitola
with construction of a new Substation in Ohrid, proves to be
the best available option for the investment.
#
12
This project is funded
by the European Union
Detailed Conclusions from Comprehensive Financial /
Economic Assessment:
The best Variant for implementing this Project is characterised by the following parameters
(estimates for a period 35 years, Discount Rate 6.6% p.a. – MMKD and 9.4% - ALB):
Macedonia
Albania
Required Investment:
€43.5 million
€21.5 million
NPV (for MEPSO):
+€6.3 million
+€2.7 million
15.3 years
10 years
12.5%
13.9%
+€37.9 million
+€43.9 million
Simple Payback Period:
IRR:
Impact on Macedonian / Albanian Economy:
#
13
This project is funded
by the European Union
Tasks related to Financial / Economic Component
Deliverables produced under Finance / Economic Feasibility Study
Component of the WB4bis-REG-ENE01 Project:
•
Economic Assessment
•
Financial and Economic Cost-Benefit Analysis
• Risk and Sensitivity Analysis
#
14
This project is funded
by the European Union
Conclusions from Risk and Sensitivity Assessment
The results of the Analysis indicate that the risks to the
Project from the general economic and political
situation in both Countries concerned and also the risks
deriving from the financial situation of MEPSO are
limited. In case of OST, there is some increased concern
owed to situation with CEZ Shperndarje.
The best proposed Variant indicates some increased
sensitivity associated with changes to some
identified parameters (see the next slide).
#
15
This project is funded
by the European Union
Conclusions from Risk and Sensitivity Assessment
Discount rate sensitivity analysis
NPV - to MEPSO
NPV - to OST
20,000,000
15,000,000
10,000,000
5,000,000
0
10,000,000
5,000,000
0
-5,000,000
- 3%
- 1%
Base
case
+1
+3
- 3%
+5
- 1%
Base
case
+1
+3
+5
NPV - to MEPSO
NPV - to OST
Interest rate sensitivity analysis
NPV - to OST
4,000,000
10,000,000
2,000,000
5,000,000
0
0
-2,000,000
- 1%
Base
case
+1
16
+3
+4
+5
-5,000,000
NPV - to OST
#
NPV - to MEPSO
This project is funded
by the European Union
- 1%
Base
case
+1
+3
NPV - to MEPSO
+4
+5
Conclusions from Risk and Sensitivity Assessment
1.
Project shows very high sensitivity to changes in Discount Rate (DR).
The first +1% increase in initially assumed Discount Rates results in
changes of the NPV valuation close to 30%. DR above 12.5% would
mean a financially unviable project to at least one Operator.
2.
High sensitivity to changes in the Interest Rate. A +/-1% change in the
Interest Rate from the Base Case of 2% results in approximately -/+27%
change in the Project’s NPV. Nominal Interest Rate above
approximately 5-6% would mean the Project getting into lossmaking territories.
3.
Some increased sensitivity to changes in Investment Cost. A 10%
increase in Investment Cost above the Base Case assumptions would
translate into more than twice that figure worth of loss of the NPV.
Investment Cost increases above 35% from the Base Case scenario
would mean the Project getting into a negative NPV value.
However, risks of these parameters adversely affecting the Project
are low, due to the rather conservative initial Project assumptions.
#
17
This project is funded
by the European Union
Infrastructure Projects Facility
Technical Assistance Window (IPF TA)
Western Balkans
THANK
YOU
VERY MUCH FOR YOUR
ATTENTION
#
18
This project is funded
by the European Union
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