Thursday, January 31, 2013

KANGAL 457 MWe Thermal Power Plant for Sale

Dear Colleagues,
We have received recent initiatives for cancellation of earlier privatization tenders since their final sale prices were found lower than expected. Market price is the last price. All other estimations are wishful thinking. If there is a risk for cancellation, then there will be less interest for participation to new privatization tenders. Political power should know that this is a serious business and market forces can not be tamed so randomly.  Long awaited Public Auction will take place on 8th  February 2013 Friday afternoon at 1500 hours. We would like to remind you the last minute recommendations on the pricing and risk appetites of participants herein below. Investor risk appetite was quite high in Kangal 457 MWe Thermal power plant privatization. There were 7 investor groups which have applied for pre-qualification for auction participation, These were,

Bereket Enerji Üretim AŞ
Limak İnşaat Sanayi ve Ticaret AŞ
Torunlar Gıda Sanayi ve Ticaret AŞ
Gür-Tem Madencilik Turizm ve Ticaret Ltd. Şti.
IC İçtaş Enerji Üretim -Fernas İnşaat JV
Konya Şeker - Siyahkalem Mühendislik JV

YDA İnşaat- Çelikler Taahhüt- Özgün Yapı JV

It is our feeling that under prevailing market expectations based on 8-10 years of payback period, the final price may exceed 1.500 billion US $ on Friday. This coal mine, which produces the coal requirements of the Kangal Thermal Power Plant (457 MWe) is located 30 km south of Kangal (Sivas) city center. Coal mine site is licensed to Public Electric Generation Company. It has been operated by a local private contracting company since 1989 under  20-year long term agreement. 

Coal contract is renewed with a new group for one-year only until turnover in privatization. Plant property will be sold, whereas coal basin will be transferred for a certain period.     
All three Steam boilers were designed by Hungarian Ganz-Rock under license of German EVT company (Now Alstom). General contractor of plant construction was TransElectro of Hungary, Steam Turbines (150-150- 157 MWe) were supplied by MHI of Japan.  
Date of commission is 1989 for 1st unit, year 1990 for 2nd unit and year 2000 for the 3rd unit. The 3rd unit has sufficient size FGD unit but need ESP enlargement and rehabilitation. Hence 1-2 units will need new ESP enlargement and complete new FGD installations.
At the Kalburçayırı section with proven 142 million coal reserves, coal production is still continued in two seams, each at 7 meters thickness on average, the overburden thickness is 42 meters above seam and interburden thickness is 20 meters between seams. The stripping amount of the overburden and interburden is approximately 30m tons per year, for an annual coal production of 5.4 million tons to meet the fuel demands of the Kangal mine mouth thermal power plant. With other two nearby coal basins, total proven reserves reach to 203 million tons. 
In Kangal (Sivas) thermal power plant, there was an ongoing rehabilitation order on 1st and 2nd units as placed by the Public Electricity Generation Company to the OEM supplier without any competitive tender. Rehab is now completed. 
Kangal thermal plant is in the Sivas province at a far distance where we all forget but expect the plant to generate 457 MWe electricity for the national grid. Kangal coal will need further calorific value enrichment of the available coal prior to feeding to coal mills. Coal has LHV between 990- 1210 kcal/kg, 48% water, 23% ash, 1.93% sulphur average as received at site. 
Kangal 457 MWe TPP price is first estimated to be between 500-700 million $, however now more than 1.500 billion US$ considered in market due to high participation. That figure may reach higher but at that time becomes unrealistic/ unreasonable/ difficult to finance. 
Ebitda in Kangal is not so good under upfront estimations at this time, however project is promising to be twice after privatization, that is why investor risk appetite is high. Investors should take calculated risks and are not to be blindfolded gamblers in Kangal. In Kangal 457 Mwe TPP sales, risk is in nearby coal, prevailing local coal price delivered to the plant is approx 2.00 US$/ MmBtu which may be reduced to less  with further investments on mechanization. 
Plant  availability may get higher after privatization during further rehabilitation and better upgrading. Restructuring and reorganization are deemed necessary after privatization scheme. 
Do note that Plant is on the remote mountain region,  far from Sivas city center, with almost no major dwellings nearby, so there is almost no local reaction, almost no risk of EIA. Payback period of plants in privatizations in Turkey has reached to 8-10 years now due to high investment appetite for complete power plants already in operation.  
Kangal thermal power plant sales in privatization will be an excellent application for John Nash's Game Theory. Please make your calculated risks, put a ceiling to your financial capacity and do not exceed that threshold. Valuation of a generation asset is not only taking into account financial and operational figures. It also covers strategy, risk appetite, market share and possible upstream and downstream integration(s).  Aggressive risk appetite of local groups are very different from reputable global energy players. 
Your Comments are always welcome. 
HalukDireskeneli at,  Munich, Germany

Further notes..
Kangal 457 Mwe thermal power plant is sold
on 8th February 2013 afternoon
at open auction between 7 participants
to KonyaSeker SiyahKalem JV
for 985 million US$
at reasonable price with relatively easy project finance
ready to consume generated electricity within group companies at low price
with almost estimated 7 years payback-
at low risk appetite shown by the market- with almost no risk of cancellation,
with nearby proven coal reserves sufficient for next 40 years in 3 regions
rehab cost estimated 40-50 million US Dollars to be spent next 5-6 years

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