Windforce’s Mannar project’s cost increases further as crane topples

Windforce PLC has flagged further cost increases in the two wind power plants it is setting up in Mannar. 

In May, last year, the company informed the Colombo Stock Exchange (CSE) that the total project cost of the 10MW+5MW wind power plants would amount to Rs.6.65 billion, due to the rupee devaluation and cost increase in local material and services. 

Last week, the company informed to the CSE that the cost would go up further to Rs.7.45 billion, due to a toppling of a crane on the project site.

“The company wishes to inform that during the erection of the wind turbine bottom tower at location 03, Nanattan, Mannar project construction site, the hired 500T main crane toppled. This crane is unrepairable and the company had planned to import another 750T crane on rental to continue the project. On a more positive light, no casualties were reported in the accident, due to the safety precautions in place,” a stock market filing by Windfore said.

“The damage was recorded at Rs.995 million, out of which approximately Rs.377 million will be covered by the project insurance, excluding the finance cost and other incidental cost relating to the accident. In addition, there is also a Rs.179 million cost escalation, due to the increase of VAT and global raw material prices. Hence, the estimated cost of the project has increased from Rs.6,653,000,000 to Rs.7,450,000,000,” it added.

“Consequently, the equity infusion for the project from the company’s IPO funds is to be increased to Rs.2,500,000,000, with an expected change in the debt equity ratio from 75:25 to 65:34. The additional IPO funds will be sourced by reallocating the funds for the Tororo Phase II Project, which is delayed, due to the on-going grid study by the Electricity Regulatory Authority (ERA) in Uganda. This project will commence upon the completion of the grid study in July 2023 and it will be funded by the remaining IPO funds, company’s own reserves and debt financing,” it further said.

However, Windfore said as the Power Purchase Agreement (PPA) is yet to be signed, an 80 percent upward tariff rate revision is expected to the US dollar at the indicative LKR/USD rate published by the Central Bank, seven working days prior to the signing of the PPA. 

“As a result of the tariff revision, the project will likely earn an equity IRR of 75 percent, with a project IRR of 9.2 percent, at 1,5.6 percent WACC. Moreover, negotiations are underway to further increase the tariff to compensate the prevailing high interest rates in the market, which will likely increase the equity IRR to 15.3 percent, with a Project IRR of 73.2 percent,” the filing said.