Those who know IRR will agree with me

Considering the project is 75% financed by debt, project IRR of 15.5% can easily be more than 30% in term of ROI

FYI, IRR 15.5% does not equal to ROI 15.5% but much higher

----------------------------
stockraider Remember a 15.5% ROI pa on paper is nothing to shout about when u r dealing with greenfield 3rd world country project loh...!!

At 7238 annual utilization hours, Jaks' IRR is about 15.5% which matches information provided by Nagachan. From his statement below, I know Nagachan indeed has in-depth knowledge of BOT IPP in Vietnam. Very few will know that the tariff is actually calculated in USD but paid in Dong and eventually converted to USD again. I know this is true.

I will be grateful if Nagachan could provide more information. tq

---------------------
nagachan I am involved in a similar power project of the same size like Jaks (also under construction now). Basically all PPAs in Vietnam have to have the following to be bankable. BOT contract, fuel cost (coal price) passed thru. No IPPs will take fuel risk even in Malaysia. USD fluctuations not a concern as the tariff is index to USD even though is paid in Dong. The last thing is Dong convertibility which is guaranteed by MOF of Vietnam. In essence Jaks is a profitable IPP with project IRR around 15%. The only thing to worry like in any other business is Management credibility.

I will be grateful if Nagachan could provide more information

At 7238 annual utilization hours, Jaks' IRR is about 15.5% which matches information provided by Nagachan. From his statement below, I know Nagachan indeed has in-depth knowledge of BOT IPP in Vietnam. Very few will know that the tariff is actually calculated in USD but paid in Dong and eventually converted to USD again. I know this is true.

---------------------
nagachan I am involved in a similar power project of the same size like Jaks (also under construction now). Basically all PPAs in Vietnam have to have the following to be bankable. BOT contract, fuel cost (coal price) passed thru. No IPPs will take fuel risk even in Malaysia. USD fluctuations not a concern as the tariff is index to USD even though is paid in Dong. The last thing is Dong convertibility which is guaranteed by MOF of Vietnam. In essence Jaks is a profitable IPP with project IRR around 15%. The only thing to worry like in any other business is Management credibility.

More people know about Jaks' potential now

Dear Sslee

Capacity charge includes payment for capacity and fixed maintenance as well as agreed capital returns.

Here we are talking about vietnam government tariff for local IPPs which should be sufficient to cover IPPs' expenses including maintenance costs.

However, the tariff or capacity charge paid by the government still need to minus the maintenance costs etc to get the net profit.

I agree that new plants have very low maintenance cost. However, my intention here is to show the impact of change in annual utilization hours on earnings on a long term basis, thus I have to consider the case under normal operating conditions.

-----------------------------
Sslee Dear DK66,
Normally a new plant would have very low maintenance for first few years hence only a provision is provided (I thought previously I read somewhere from your article that this maintenance provision is provided for in the agreed power purchased agreement).
Only after the recommended hours of operation then only have scheduled MTA to replaced those wear and tear parts.

Thank you
09/12/2019 9:55 PM

Article amended on Sslee comments. Thank you Sslee.

Dear Sslee,

I apologize that I have misunderstood you. You have always tried to lower my figures.

I have chosen to use the net output for both 6500 and 7238 hours for simplicity. Anyway, the net impact is only about US$1m. It won't affect my conclusion.

Nevertheless, I will amend my article for more "correct" presentation

but I still do not understand your point on "Should take out Maintenance cost since tariff should included maintenance payment."

Thank you

Nagachan,

Do you have an estimate for the earnings of Jaks upon COD ?

Thanks for the affirmation

----------------
nagachan DK66 my answer to you is Yes
09/12/2019 8:47 PM

Dear Sslee,

You didn't say these when I included auxiliary consumption and maintenance in my previous article "Jaks Resources - Earning Forecast of Hai Duong Power Plant based on Government Data" - Why ?

Now you want me to exclude just because it will lower the impact ?

Your view is contradictory - now the 6% auxiliary consumption is taken care of by the coal cost and the tariff has included maintenance payment, but not in my previous article !

Anyway, there is no way to confirm that the coal cost has taken care of the auxiliary consumption and the tariff has included maintenance payment. As the government data were meant for local IPPs. I don't think the government would manage the costs of the IPPs.

As far as the interest cost is concerned, I have already explained I have used the long term average interest cost as it is deemed more appropriate for making long term investment decision.

Thank You.

------------------------------
Coal cost should take care of 6% auxiliary consumption
Should take out Maintenance cost since tariff should included maintenance payment.

After 13 years , the tax rate will be 10%. Roughly RM30m

Nagachan, Thanks for sharing your knowledge. May I ask how do you know the IRR for Jaks is around 15%? Is your project also in Vietnam ?
------------------------
nagachan I am involved in a similar power project of the same size like Jaks (also under construction now). Basically all PPAs in Vietnam have to have the following to be bankable. BOT contract, fuel cost (coal price) passed thru. No IPPs will take fuel risk even in Malaysia. USD fluctuations not a concern as the tariff is index to USD even though is paid in Dong. The last thing is Dong convertibility which is guaranteed by MOF of Vietnam. In essence Jaks is a profitable IPP with project IRR around 15%. The only thing to worry like in any other business is Management credibility.

Windy1974, tq for your compliment.

1. Jaks is protected from coal price fluctuation as cost of coal is directly passed thru to EVN under the PPA.

2. Note that the fixed and variable O&M costs are obtained from the following article (page 13)
https://ens.dk/sites/ens.dk/files/Globalcooperation/Official_docs/Vietnam/vietnam_technology_catalogue_-_english.pdf

3. As the loan is on non-recourse basis, 6% is reasonable.

4. Increase in shareholding by Jaks does not affect payback period as it is calculated on project basis


----------------------------------
Windy1974 DK66. TQ for your detailed and great FA. I wished i could be as meticulous as you. However, some questions below.
1. My understanding is that this BOT should protect JAKS from coal price fluctuation right? meaning if coal price higher, Vietnam govt will compensate more but if coal price drop, JAKS will get less also? I am fine as profit is visible instead of relying on commodities fluctuation?
2. On what basis you benchmark on O&M cost?
3. Interest expenses of 6% i reckon is high for a borrower like CPECC. However, i am fine being conservative
4. What would be the pay back period for JAKS to incease shareholding by another 10%?
IRR of 12% alone is pretty high for power business. I guess JAKS is lucky because USD was around 3.1 then. Forex gain alone already 30%. However, USD fluctuation against MYR will determine how much JAKS profit in MYR term for the next 25 years. Now, i in dilemma whether i want Ringgit stronger not haha. This power plant deal is a once in a life time deal and ALP will become top 50 richest man in Malaysia
09/12/2019 6:13 PM

But the link below is fine for me

https://klse.i3investor.com/blogs/Jaks%20resources/245519.jsp

How about others ? is the link ok ?

Really ? what went wrong ??
-----------------
VIN3133 DK66, i can only read ur article by clicking " DK66" !!

VIN3133, i already repost the article. Follow the link below.

Jaks Resources - Higher Than Expected Investment Returns from JHDP ?

https://klse.i3investor.com/blogs/Jaks%20resources/245519.jsp

Ramada, thanks for your 1st "like"

Repost as new article

Jaks Resources - Higher Than Expected Investment Returns from JHDP ?

https://klse.i3investor.com/blogs/Jaks%20resources/245519.jsp

OK, i will try to repost the article

I will try to contact i3 admin

Ramada, you were the first one to "like" the article when i first posted the article yesterday before taking it down for amendment. Thanks

DragonG, glad that you liked the article

I have changed the title of the article

Jaks Resources - Higher Than Expected Investment Returns from JHDP ?

https://klse.i3investor.com/blogs/Jaks%20resources/245090.jsp

I have temporarily remove the article for amendment. Will post again.

Jaks Resources - Derivation from production data of Vinh Tan 1

https://klse.i3investor.com/blogs/Jaks%20resources/245090.jsp

Jaks Resources - Derivation from production data of Vinh Tan 1

https://klse.i3investor.com/blogs/Jaks%20resources/245090.jsp

Vinh Tan 1's superior 1st year operation should be a wake up call to those who still think that Jaks Hai Duong power plant will need several years to turn profitable after commissioning.

https://www.csg.cn/xwzx/2019/gsyw/201912/t20191206_306483.html

◎上网电量占越南总上网电量3.5%

◎两台机组负荷率高达95.80%，累计发电86.86亿千瓦时，年利用小时数达7238小时

◎累计售电81.94亿千瓦时

◎ 2019年项目预计年总发电量约86.5亿千瓦时

Vinh Tan 1 is 55% owned by China Southern Power Grid

Vinh Tan 1 is constructed (not owned) by CPECC subsidiary CEEC

Vinh Tan 1 is a testimony of the capability and reliability of china's thermal power technology.

TST1234, Thanks for info sharing

-----------------------
TST1234 Article related to China Vinh Tan 1 Power Plant in relation to first year anniversary of commercial operation for Unit 1 & Unit 2.

http://www.cnr.cn/gd/gdkx/20191206/t20191206_524886717.shtml

Dear Sslee,

You have previously provided the above information but you did not explain how the profit from EPC isn't sufficient to meet the capital commitment.

Are you sure the last PP money were used to meet the capital commitment ?

It is not helping the i3 readers here by raising unsubstantiated doubts.

Thank you

Dear Sslee,

The capital commitment was reduced from US$92.14m in Dec 2018 to US$56.14m as at 30 Sept 2019 using profit from its vietnam EPC contracts.

I have demonstrated many times that the profit from vietnam EPC contracts is sufficient to fulfill the power plant capital commitment. You could not provide counter arguments but continue to insist without merit that Jaks would not be able to meet its capital commitment. Why ? This is unlike you.

Vietnam electricity shortage is severe

https://www.reuters.com/article/us-vietnam-energy/vietnam-will-face-severe-power-shortages-from-2021-ministry-idUSKCN1UQ11M

In short, the power plant will be negatively affected by;

1. below par performance test
2. low electricity demand
3. low PLF and efficiency
4. act of god
5. weak USD/RMB
6. unexpected high maintenance costs
7. higher than normal interest costs

However, I believe the capacity charge would have incorporated sufficient cushion for most of the above impact.

The BOT contract provides protection against change of law, where the MOIT has to compensate the operator for negative impact. Alternatively, the operator may opt to exit and seek compensation from MOIT. This is guaranteed by the Vietnam government.

The capacity charge is based on the annual performance test which could affect capacity payment if test results are not satisfactory. The rates are fixed and will not be affected by the change in government tariff.

Energy charge is based on electricity demand and plant efficiency. Strong electricity demand leads to high PLF and in turn higher efficiency. Thus better profit. Fuel costs are pass thru thus profitability is only affected by efficiency not raw material costs. It is not affected by government tariff as well.

The power plant is guaranteed by the vietnam government against acts of human such as strike, civil wars etc. However, acts of god is subject to collaborative agreement.

All except local currency (VND) based expenses will be based and paid in USD. As maintenance costs will be majority denominated in RMB, weak USD/RMB will affect profit negatively and vice versa. As far as Jaks Resources is concerned, strong USD/RM will have positively effect as Jaks records the profit sharing in RM term.

yes, before the end of the 3rd year

i3lurker,

"please let us know if the 48 sen EPS figures are affected by any new developments" - I don't quite understand. Are you referring to changes in tariff or law or something else ?

Yes, 1200MW is maximum. In fact, it will be less as there will be auxiliary power consumption by the plant itself ranging from 6 - 8%

-----------------------------
i3lurker dk66

please let us know if the 48 sen EPS figures are affected by any new developments

can the plant do any further capacity enhancements or is the 1200MW already the maximum maximum?

i3lurker,

The option will lapse after third year from the COD

-------------------
i3lurker first 3 years higher profits

remember new car?

quite a lot of people sell car after 4 years to get out of maintenance charges.

same concept

Coal power plant is a base load energy producer. It becomes more efficient operating at high load. It cannot produce "too much" electricity. It can only produce as much as maximum load. However, efficiency of the plant greatly impaired especially if asked to run at less than 60% PLF where HFO is required to supplement coal. This would mean higher cost per Kwh electricity produced thus less profit. Yes, sometimes it is better to shut down the plant completely.

---------------------------------
i3lurker the eps is determined by contract

sometimes the capacity payments may result in optimisation in that its better not to sell too much electricity or any electricity at all.

sell electricity ==> got maintenance and upkeep, extra staff etc etc

dun sell electricity ===> still get paid

OTB, I believe it is BEFORE instead of after the third year after COD.

-----------------------
OTB If I am not mistaken, CPECC will allow Jaks to buy 10% option after third year.
After third year, Jaks will own 40% of the power plant.
I remember this clause was mentioned in the meeting.
Thank you.
05/12/2019 6:55 PM

https://vietnamnet.vn/en/business/china-investment-in-vietnam-surges-amid-trade-war-592462.html

Among 60 cities and provinces having received FDI between January and November, Hanoi has attracted the largest portion of capital commitments with over US$6.82 billion, accounting for 21.5% of total commitments in the period.

Ho Chi Minh City came second with US$5.48 billion, followed by Binh Duong, Dong Nai, Bac Ninh.

You are welcome

-------------------------
WEunity Thank you DK66
02/12/2019 4:18 PM

strengthening of USD will not affect Jaks Hai Duong Power Ltd (JHDP). All payments, except for costs based in VND, are made in USD.

As far as Jaks Resources is concerned, strengthening of USD will translate into higher income in ringgit term as Jaks records its books in ringgit.

However, strengthening of USD against RMB would be positive for JHDP as its maintenance costs will be dominated in RMB.

-----------------------------------
probability DK66, would strengthening USD against VND benefit Jaks from the power plant BOT contract? or no difference?

https://www.xe.com/currencycharts/?from=USD&to=VND&view=5Y

i guess volatility in exchange rate also falls on cost pass-through mechanism?

TP = (CC x AC) + (EC x EO) + SC

where, Suppl. Charge (SC) =

- Exchange Difference
- Compensation
- Other services

WEunity,

Hopefully the article below may help you.

Jaks Resources - An excellent joint venture deal with CPECC

https://klse.i3investor.com/blogs/Jaks%20resources/226058.jsp

---------------------------
WEunity sorry, i still do not understand how could Jaks secure such huge project from Vietnam government as they are a small company. How did they get confident from Vietnam government they can deliver multibillion dollar project?

Sarifah, I know why the IBs are laggard. Jaks management did not want to give any profit guidance and the IBs are not brave enough to analyse the way I did. Maybe they cannot afford the time or they are just "punishing" Jaks for hiding information. So, they are playing safe and give low TPs. However, when they see the price moving up way past they TPs, they have to revise up their TPs so as not to look irrelevant and incompetent.

I don't blame them, this is how they operate. They have to play safe.

VIN3133, You are welcome.

I hope many more can benefit from my sharing.

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VIN3133 Totally agree with OTB.
We studied whatever info /materials available and we make our own judgement and decision .
No one is forcing us .
Our own money, our fate and we decide own self .
No one is to be blamed whatever the outcome .
Here, i must express my profound gratitude to DK66 for sharing his analysis gratis unselfishly !!
Hats off to you , DK66 !!