Friday, November 02, 2012

Project evaluation

Dear Colleagues, Dear Energy Professional,
We recently evaluated a new investment opportunity at Amasra county of BARTIN province, on the North West Black Sea coast of Turkey close to a touristic small fishermen's village.  Below is the brief "Executive Summary" for an international project financing institution in draft format.

Investor discloses that they have received a longterm leasing contract from Turkish Bituminous Coal Enterprise, with predicted capacity of 780 million tons at -740 meters below sea level/ underground/ undersea bed basin on the North West Black Sea coast for 49 years.

They predict that they may exploit at least 500 million tons economically, to generate an income of 50 billion US Dollars equivalent. That is approximately 100 US Dollars per metric ton of 6000 kcal/kg LHV bituminous coal, which makes approximately >3.81 US Dollars per MMBTU. That figure is too expensive. It would be reasonable to reduce that figure to 70 USDollars per Mton.

We know that current imported coal spot market figure is floating around >80 USDollars per MetricTon of similar calorific value, CIF delivery at BlackSea Coast, that is approximately 3.01 US Dollars per MMBTU. Australian FOB delivery at NewCastle port, as of October 2012 is 107 US Dollars per metric ton for 12,000 BTU per pound HHV coal, that is 3.21 USDollars per MMBTU.

So available local bituminous coal is more expensive than imported coal, also more expensive than local lignite which has >2.00 USDollars per MMBTU, hence more and  more expensive than local poor quality Elbistan coal which has plant delivery of price >1.10 US Dollars per MMBTU. Do not expect Russians charge you cheaper. Russians check the world spot price, and make calculations for C&F delivery at your plant site, then charge you the same. They are excellent business people.

Hence in site presentation, Investor also advises that they have 2.5 billion USDollar budget for 2000 MWe total output plant electricity generating capacity of two plants 2x660 MWe, and 1x660 MWe respectively.

That reveals that  their ball-park budget is 1250 USDollars per installed kw thermal power plant. We know that Western reputable companies are not interested for such low budget projects with such high capacity thermal power plants. Their plants are equipped with high-tech ESP and FGDs to avoid any local reaction or any environmental difficulty.

Western companies expect a ball-park project budget more than 2000 US Dollar per kw installed capacity in order to get interested in the investment project. Their expected life-span is more than 30 year operation.

For such a low budget, you may expect to receive interest from Far East suppliers, with low budget, short life span, low quality/ no or limited spare/ limited redundancy boiler island designs.

Investor discloses that they plan to employ >11K employees in the plant. If that 11K is for the number of coal workers, that means it is labor intensive underground coal mine working, so we expect labor intensive manual work conditions at high casualty with limited mechanization. If 11K figure is only for the thermal power plant, then we may presume that one zero is erroneously added, hence we expect that the figure should be around 1100 for such size new modern thermal power plant. 

We are not sure if this project would be feasible, if the project will attract any foreign financing other than Exim Bank of the low cost Far East supplier's country, if the project will pass the environmental impact assessment procedures in the long term. They are preparing to apply to the Ministry of Environment for EIA approval prior to their investment license application from the Local Regulatory Board, EMRA.  However, since EIA permission has not been granted yet, prior to their EIA application, they will be organizing a "Public Information Meeting". 

Those companies, who are ignorant of local environmental concerns, local workforce employment expectations, neglecting local engineering contribution, neglecting environmental limitations, will surely deserve the highest level of local resistance in legal platforms. 

They will have too much of a headache during project execution; therefore, the project finance institutions should make their risk assessments carefully; otherwise, they pay the consequences heavily.

We would like to  warn them not to make any technical mistakes in their power plant design, avoid incorrect selection of the necessary equipment, and wish them to operate the plant for many years, to generate electricity which will push our economic prosperity. With best regards.

Haluk Direskeneli

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