Jaks 30%
Topglove 20%
Supermax 20%
Dayang 20%
MFCB 10%

Please add me too, thanks.

DK66, thank you for your clarification which has cleared my queries and doubts. Really appreciate it.
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johnswj90, yes, the excess over the loan receivables repayment is taken up in the P/L as interest income.

As payments are collected from the customer over the term of the contract, consideration related to the construction performance obligation is split between the repayment of loan receivables and interest income. You are right to determine the annual loan receivables repayment amount as simply the equal portion of the loan receivables over the concession period, i e straight line.

There is no specific formula to determine the proportion of capacity payment to be repayment and income. I suppose the profit element is determined by the required returns of the investors. In this case IRR of 12%.

DK66, I am not an accountant. I am an engineer by profession.

I am interpreting in such a way that for a capacity payment of USD 253 Million for a period of 25 years for a USD 1.868Billion project, that provides a 12.9% of IRR. Well if we normalize against the capacity of both plants (Hai Duong is 1200MW while Mong Duong II is 1240MW), a USD245Million capacity payment gives rise to an IRR of 12.4% which is also rather in line with Jaks management's projection. I might be wrong in such interpretation.

Regarding the capacity payment, I created an amortization table over 25 years payment based on the Project costs of USD 1.868Billion for capacity payment of USD 244 Million (Mong Duong II is 1240 MW while Hai Duong is 1200MW) so, slightly lesser capacity payment, which gives an effective interest rate of around 12.4% (well, similar to the IRR value calculated previously). This is an equivalent to we are receiving a higher interest income in the beginning than principal, and vice versa and time goes by approaching the end of 25 years. Similar to a standard home loan.

What I do not understand is that how the capacity payment of USD 253million is split among the USD 67M (loan receivables) and USD 186M (interest income). Maybe the USD67 Million is obtained by dividing the remaining number of years of operation (tenure) over Remaining Costruction costs (Total loan receivables), and the rest are interest income? Which is the reason of me raising my query here in order to understand the article better.

Anyway, I really appreciate your time to attend to my queries as a newbie here. Please feel free to correct me should there be any flaw in my interpretation.

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johnswj90, you are welcome.

By the way, are you an accountant ? It is easier for an accountant to swallow the article.

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johnswj90 Dk66, OK will slowly digest them Thanks.

Dk66, OK will slowly digest them Thanks.

DK66, thank you for the clarification. As of now I would take 6% as the guideline for my own calculation.

I would like to seek further advice from you in terms of the capacity payment. Based on the latest accounting standard, how do we determine the portion to be recorded as loan receivables and interest income? Sorry for taking your time to answer my queries.
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johnswj90, you understanding is correct except the 6% borrowing cost is only an estimate, and 12% IRR is not equivalent to 12% interest charge to EVN. Loan receivables represents the cost of the power plant not exactly the bank borrowings.

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johnswj90 Dear DK66, thanks so much for your clarification. I would like to summarize this into layman term. Please correct me if I am wrong. JHDP will position itself as an operator of the Plant as well as a "Bank" to EVN. JHDP took loan from a bank with a loan tenure of 18 years (quoted from one of your article) which it has to serve the interest (expense) and the principle (loan payable), 6% for a period of 18 years. At the same time, JHDP will receive capacity payment from EVN for 25 years which the costs will be recorded as interest (income) and principal paid (loan receivables). Given the IRR of 12% over a period of 25 years, it is like JHDP will serve as a "Bank" who charges a 12% interest to EVN and EVN will pay a certain amount as capacity payment for a tenure of 25 years. Energy payment will be a separate story related to the operation of the Plant. In short, EVN pays you the amount based on the agreed efficiency (heat rate) to cover your costs. Any savings/optimized cost (given same amount of electricity dispatched) realized shall be kept by JHDP as additional profit.

Dear DK66, thanks so much for your clarification. I would like to summarize this into layman term. Please correct me if I am wrong. JHDP will position itself as an operator of the Plant as well as a "Bank" to EVN. JHDP took loan from a bank with a loan tenure of 18 years (quoted from one of your article) which it has to serve the interest (expense) and the principle (loan payable), 6% for a period of 18 years. At the same time, JHDP will receive capacity payment from EVN for 25 years which the costs will be recorded as interest (income) and principal paid (loan receivables). Given the IRR of 12% over a period of 25 years, it is like JHDP will serve as a "Bank" who charges a 12% interest to EVN and EVN will pay a certain amount as capacity payment for a tenure of 25 years. Energy payment will be a separate story related to the operation of the Plant. In short, EVN pays you the amount based on the agreed efficiency (heat rate) to cover your costs. Any savings/optimized cost (given same amount of electricity dispatched) realized shall be kept by JHDP as additional profit.

Feel free to comment if there is any mistake here.
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johnswj90, under the new accounting standard, the construction costs will no longer be recognised as concession assets hence amortised/depreciated over the concession period. Instead, the costs is recorded as "loan receivables" and gradually reduced (by capacity payment) over the concession period.

At the end of the concession period, the power plant will be transferred to the Vietnam government free of charge.

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johnswj90 DK66, I would like to seek your opinion on the depreciation calculation for this plant, whether will it be a straight line 25 years with no recovery cost or the company can recover a certain residual amount after 25 years based on the BOT contract.
14/04/2020 11:04 AM

DK66, I would like to seek your opinion on the depreciation calculation for this plant, whether will it be a straight line 25 years with no recovery cost or the company can recover a certain residual amount after 25 years based on the BOT contract.

DK66, Noted and thanks for the confirmation. I agree with you that the IRR mentioned by Andy refers to Project IRR, which translates to around 23.4% of Equity IRR for the case of Debt:Equity ratio of 75:25 for a tenure of 18 years with 6% interest rate.

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Johnswj90, Andy Ang did not specify whether the IRR is Project or Equity IRR. However, if you take reference to those Coal power plant projects in China, their equity IRRs are around 30%. Therefore, I presume the IRR mentioned by Andy refers to Project IRR. In any case, equity IRR of 12% is just too low in my opinion.

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johnswj90 Dear DK66, may I confirm with you whether the IRR mentioned is Project IRR or Equity IRR??
30/03/2020 10:17 PM

Dear DK66, may I confirm with you whether the IRR mentioned is Project IRR or Equity IRR??

Dear Mr Tan: Kindly see below my stock selection:

1. MFCB - 30%
2. Jaks - 30%
3. Dayang - 10%
4. MKH - 15%
5. MI - 10%
6. RSAWIT - 5%