Dear energy professionals and colleagues,
A long-awaited public auction will take place at 1500 hours on Friday afternoon, February 8, 2013. We would like to remind you of the last minute recommendations on the pricing and risk appetites of participants herein below.
Investor risk appetite is quite high in the Kangal 457 MWe Thermal power plant privatization, there are seven investor groups which applied for pre-qualification for auction participation, and the final price may exceed USD 1.5 billion on Friday.
The coal mine, which produces the coal requirements of the Kangal Thermal Power Plant (457 MWe), is located 30 km south of the Kangal (Sivas province) city center. The coal mine site is licensed to the Public Electric Generation Company, and it has been operated by a local private contracting company since 1989 under a twenty year-long term agreement. The goal contract is renewed with a new group for one year only until turnover in privatization. The plant will be sold, whereas the coal basin will be transferred for a certain period.
All three steam boilers were designed by Hungarian Ganz_Rock under the license of German EVT (now Alstom). The general contractor was TransElectro of Hungary and the steam turbines (150- 150- 157 MWe) were supplied by MHI of Japan. The date of commission is 1989 for the first unit, 1990 for the second unit and 2000 for the third unit. The third unit has sufficiently-sized ESP and FGD hits. However one to two units need a new ESP enlargement and completely new FGD installations
At the Kalburçayırı section, coal production is still continued in two seams, each at 7-meter 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 30 million tons per year, for an annual coal production of 6 million tons to meet the fuel demands of the Kangal mine mouth thermal power plant.
In the Kangal thermal power plant, there was an ongoing rehabilitation order for the first and second units as placed by the Public Electricity Generation Company to the OEM supplier without any competitive tender. Rehabilitation is now complete with some minor missing items.
The Kangal thermal plant is in the Sivas province at a far distance, where we all forget but expect the plant to generate 457 MWe of electricity for the national grid. The Kangal coal will need a further calorific value enrichment of the available coal prior to feeding coal mills. Local coal has originally had between 990- 1210 kcal/kg LHV, 48% water, 23% ash, 1.93% sulfur average as received at site.
The Kangal 457 MWe TPP price was first estimated to be between USD 500-700 million, however is now considered to be more than USD 1.5 billion in the market due to high participation. That figure may become higher but at that point would become unrealistic, unreasonable or difficult to finance.
Ebitda in Kangal is not so good considering upfront estimations at this time. However the project is promising to be twice as valued after privatization and that is why investor risk appetite is high. Investors should take calculated risks and are not to be blindfolded gamblers in Kangal.
In the Kangal 457 MWe tpp sales, the risk is in nearby coal. The prevailing local coal price delivered to the plant is approximately USD 2 per MmBtu, which may be reduced with further investments in mechanization.
Plant availability may increase after privatization during further rehabilitation and better upgrading. Restructuring and reorganization are deemed necessary after the privatization scheme.
The plant is in a remote mountain region, far from the Sivas city center with almost no major dwellings nearby, so there is almost no local reaction, almost no risk of EIA. The payback period of plants in privatizations in Turkey has reached to eight to ten years now due to a 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 on your financial capacity and do not exceed that threshold.
The 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). The aggressive risk appetite of local groups are very different from reputable global energy players. Your comments are always welcome.
Last but not least, 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.
Your Comments are always welcome.
*Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, U.S. and Turkish JV companies (B&W, CSWI, AEP), in fabrication, basic and detail design, marketing, and the sales and project management of thermal power plants. He is currently working as freelance consultant and energy analyst with thermal power plants basic/detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of ODTÜ Alumni and Chamber of Turkish Mechanical Engineers Energy Working Group.