Estimate sales price of gas, Financial Management

A proposal to extend the ABC Gas Company Ltd's gas distribution network to the NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC's existing transmission line, is under the consideration of its CEO, Prerna Goyal. the NOIDA industrial cluster is dominated by the textiles industry including texturising, weaving ,spinning and yarn units with over 2,500 small and medium size units. The potential of gas consumption in these industries is mainly on account of captive power. Power constitutes 40 -65 percent of the production cost in the key target sectors for gas supply. The units in the cluster have been considering reduction of power costs by moving away from the expensive grid supply to captive power generation. The total estimated potential of captive power presently is 45 MW which corresponds to 0.30 million standard cubic meters per day (MSCMD) of gas. The proposed project is essentially an extension of the distribution network in the existing Delhi distribution zone.

A market survey of potential customer to assess the gas demand potential in the region has identified over 40 customers with a combined gas demand of 0.25 MSCMD for captive power.

Negotiation for gas supply has also been initiated with them. ABC Gas Ltd has received expression of interest for over 0.075 MSCMD. However, timing of gas supply is the key since alternative fuel option such as solid and liquid fuels and wind energy are available. The expression of interest would fall through if gas is not supplied by mid 2008.

Amit Kumar, an engineer consultant, is hired by Prerna Goyal to identify the most feasible and economical route for laying down the gas pipeline. A preliminary site survey is followed by reconnaissance survey by Amit. After conducting Quantified Risk Assessment and evaluating several pipeline options, the consultant has proposed a 12 inch, 150 class low pressure (19 bar) pipeline for a total length of 30 kms from the ABC's transmission pipeline. The capacity of the proposed pipeline will be 0.75 MSCMD.

The base investment/capital expenditure is estimated to be Rs 24 crore consisting of the following heads:

i) Engineering Rs 0.50 crore

ii) Project clearance Rs 1.2 crore

iii) Material costs Rs 13.2 crore

iv) Contacts Rs 7.7 crore

v) Commissioning Rs 0.10 crore and

vi) Contingency and insurance Rs 1.3 crore.

The pipe line has an expected life of 10 years.

The other parameters of the projects have been identified by the consultant as listed below

1) Volumes build up (in MSCMD)

YEAR     VOLUME    YEAR     VOLUME

1             0.075        6           0.121

2             0.083        7           0.133

3              0.091       8           0.146

4              0.100       9          0.161

5                0.11     10          0.177

2) Sales price of Gas, Rs 8.90 per standard cubic meter (SCM) with an increase of 3% every year.

3) Purchase price of Gas Rs. 7 per SCM with an increase of 3 % every year.

4) Variable costs are assume to be constant throughout the 10 year life of the pipeline @ Rs. 28 lakhs per annum (Consisting of pigging of pipeline, Rs. 20 lakhs ; cathodic protection of pipeline, Rs. 2 lakh, supervision cost, Rs. 3 lakh; pipeline surveys Rs. 2 lakh; and electricity charges Rs. 1 lakh).

Assuming a straight line method of depreciation of material cost of initial capital investment for tax purposes and 12% required rate of return, analyze as a financial consultant, the financial viability of the proposal and make a recommendation to the CEO of the ABC Gas Limited.

Posted Date: 3/19/2013 6:38:52 AM | Location : United States







Related Discussions:- Estimate sales price of gas, Assignment Help, Ask Question on Estimate sales price of gas, Get Answer, Expert's Help, Estimate sales price of gas Discussions

Write discussion on Estimate sales price of gas
Your posts are moderated
Related Questions
TIME VALUE OF MONEY Time value of money can be described as the value of a unit of money at different time periods.  It involves that the value of a unit of money is not same

Advantages to the Investors: The warrant acts as a sweetener and ensures a better subscription to the NCDs, especially for companies with good track record. NCDs with warran

Q. How are the HIBOR, HSI and HSI futures related? The HIBOR and HSI are contrariwise related. So futures on HIBOR and HSI are as well inversely related. Display

Q. What do you mean by Public deposits? Public deposits are the fixed deposited by the business enterprises directly from the company. This source of the raising the short term

Question: You have been appointed as the head of the treasury of Platza International, an automobile firm with many subsidiaries abroad. The management of Platza International

Financial System: The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and hous

1.  Discuss the various techniques of cash management for an efficient working capital Management. 2.  Discuss the MM Hypothesis of Capital structure and its importance in corpo

Contingency Planning:   Once the events are evaluated and categorised, and the levels of risk attaching to them have established.  The organisation should then commence pla

Mutual funds Mutual funds pool resources from a lot of individuals and companies and invest these resources in diversified portfolios of bonds, stocks and money market instrume

Sarkozy Ltd is considering the selection of one of a pair of mutually exclusive investment projects. Both would involve purchase of machinery with a life of five years. Projec