Summary:
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## **1. EXECUTIVE OVERVIEW: THE DEAL STRUCTURE**
FCI Aravali Gypsum and Minerals India Limited (FAGMIL), a Government of India enterprise, is seeking a solar developer to take over an **already-awarded 2.52 MW solar power project** under a **Build-Own-Operate (BOO) model for 25 years**.
**Core Transaction:** FAGMIL holds a signed Power Purchase Agreement (PPA) with Rajasthan DISCOM (RUVITL/JDVVNL) at a fixed tariff of **₹3.323/kWh**. Instead of building it themselves, they want a developer to finance, construct, own, and operate the plant, selling the power to FAGMIL, who will then sell it to the DISCOM. You (the developer) will step into FAGMIL’s shoes under the PPA.
**Critical Implication:** The **commercial and legal terms are largely non-negotiable** as they are set by the PPA and LoA. You are bidding on your ability to execute and bear the pre-defined risks.
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## **2. FINANCIAL MODEL: KEY INPUTS & FIXED POINTS**
| Metric | Value | Implication for Developer |
| :— | :— | :— |
| **Contracted Capacity** | 2.52 MW AC (~3.024 MWp DC) | Defines project scale and equipment sizing. |
| **Tariff (Fixed for 25 yrs)** | **₹3.323 per kWh** | Your sole revenue stream. No escalation. Must cover all Capex, Opex, financing, and risk. |
| **Annual Revenue (at 19% CUF)** | ~₹1.39 Cr. | Theoretical annual revenue if minimum generation is met. |
| **Performance Bank Guarantee (PBG)** | ~**₹1.39 Crore** | Massive upfront and ongoing capital lock-up. Tied to one year’s revenue. |
| **Bid Security (Earnest Money)** | ₹2,00,000 | Standard. Refundable to unsuccessful bidders. |
| **Minimum Annual Generation** | 41.94 Lakh Units (19% CUF) | **Performance benchmark.** Falling short triggers significant penalties. |
| **Penalty for Generation Shortfall** | Min. **25%** of shortfall value at PPA tariff | Direct hit to profitability. Calculated as (Guaranteed – Actual) x ₹3.323 x 25%. |
| **Land Rent Escalation** | **5% every 2 years** | A rising operational cost against a flat revenue line. |
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## **3. MAJOR BUSINESS RISKS (YOUR COSTS & LIABILITIES)**
### **A. SHOWSTOPPER: IMPOSSIBLE TIMELINE & HARSH DELAY PENALTIES**
* **The Problem:** The PPA mandates commissioning by **31st December 2025**. This date is in the past.
* **The Cost:** If you are late for reasons within your control:
* **Delay up to 2 Months:** The Performance Bank Guarantee (PBG) is encashed **on a per-day basis**.
* **Delay beyond 2 Months:** **Full forfeiture of PBG** and **automatic termination of the PPA**.
* **Business Impact:** Starting a project already in breach of contract is financially suicidal. You must get a formal extension *before* bidding.
### **B. CASH FLOW & PAYMENT RISK: YOU ARE LAST IN LINE**
* **The Problem:** FAGMIL will pay you only **after they receive payment from the DISCOM** (EOI Clause 11). This “pay-when-paid” clause makes you dependent on two entities’ solvency and payment cycles.
* **Business Impact:** Unpredictable working capital cycles. Potential for long payment delays stretching beyond 75+ days (DISCOM’s 45-day term + FAGMIL’s 30-day term). This increases financing costs.
### **C. CAPITAL LOCK-UP: THE CRIPPLING PERFORMANCE GUARANTEE**
* **The Problem:** You must provide a PBG of ~**₹1.39 Crore**, valid for 25 years, refunded only after the PPA ends.
* **Business Impact:**
* **High Cost of Capital:** This is dead capital that could otherwise be deployed. Bank charges for issuing such a large, long-term guarantee are significant.
* **Credit Line Consumption:** Ties up a large portion of your bank credit limits.
* **Risk Concentration:** The entire guarantee can be called for performance or delay issues.
### **D. OPERATIONAL PERFORMANCE: STRICT, LONG-TERM PENALTIES**
* **The Problem:** You guarantee a 19% CUF for 25 years with no degradation allowance. Shortfalls incur a minimum 25% penalty.
* **Business Impact:** You bear all risks of:
* **Technology underperformance.**
* **Lower-than-expected solar irradiation.**
* **Grid unavailability or off-taker back-down** (compensation mechanisms in PPA are complex and limited).
* **Rising O&M costs** over 25 years against a fixed tariff.
### **E. FIXED PRICE VS. RISING COSTS**
* **The Problem:** Your revenue (tariff) is fixed for 25 years, but key costs will rise:
* Land rent escalates 5% every 2 years.
* O&M costs will inflate.
* Costs for the mandatory Remote Monitoring System (RMS) are yours in perpetuity.
* **Business Impact:** Profit margins will be squeezed over time. Your financial model must be extremely robust, with high initial margins to account for this erosion.
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## **4. COMMERCIAL OPPORTUNITIES & MITIGATION STRATEGIES**
### **Opportunity: De-risked Off-take**
* **The Plus:** A 25-year PPA with a state DISCOM provides **revenue certainty**, which is valuable for project financing. The tariff, while fixed, is known.
### **Strategy 1: Clarify and Reset the Timeline (Pre-Bid Mandatory)**
* **Action:** Submit an official query: *”Provide the written approval from RUVITL/JDVVNL extending the commissioning date beyond 31-Dec-2025, and confirm the new binding deadline.”*
* **Goal:** Do not proceed without this. A new, realistic timeline is the foundation of a viable bid.
### **Strategy 2: Renegotiate the Payment Chain in the BOO Agreement**
* **Action:** During BOO Agreement negotiation, insist on:
1. Removal of the “pay-when-paid” clause.
2. A clear payment term from FAGMIL to you (e.g., 30 days from your invoice).
3. Request FAGMIL to **assign the benefit of the DISCOM’s Letter of Credit (LC)** to you or provide a parent company guarantee.
* **Goal:** Secure predictable cash flow and reduce counterparty risk.
### **Strategy 3: Optimize the PBG Burden**
* **Action:** Propose a **reducing PBG mechanism** in the BOO Agreement (e.g., PBG reduces by 20% after every 5 years of satisfactory performance).
* **Goal:** Unlock capital over time and improve project IRR.
### **Strategy 4: Aggressive Technical & Financial Diligence**
* **Action:**
* **Technical:** Conduct a professional energy yield assessment. Use conservative assumptions to ensure the 19% CUF is easily achievable.
* **Financial:** Model all penalties, PBG costs, rent escalation, and a contingency for delays. Ensure the IRR works with a **minimum 15-20% buffer** on the EPC cost estimate.
* **Goal:** Avoid bidding based on optimistic assumptions. Know your true cost floor.
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