Feasibility Steel Mill

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Pro j ect Repor t

Develop ing Financ ial I n t e rm ed iat i on

Mechan isms fo r Energy E f f i c iency Pro jec ts i nthe S tee l Re- ro l l i ng C lus te r a t Mand i

Gob indga r h , Pun j ab , I nd ia

Su b m i t t e d t o

Octobe r 1 200 4

INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED

&


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Pro jec t Repor t - Deve lop ing Financ ial I n te rm ed ia t i on Mechan i sms fo r Energy

Ef f i c iency Pro jec ts in t he Stee l Re ro l l ing Clus ter a t Mandi Gobindgarh , Punj ab

Tab le o f Cont en t s

LISTOFABBREVIATIONS..3

ACKNOWLEDGEMENT...4

EXECUTIVESUMMARY ....5

1. INTRODUCTION ..12

1.0 ENERGY EFFICIENCY -BACKGROUND

1.1 ENERGY EFFICIENCY -STEEL RE-ROLLING MILLS

1.2 THE ASSIGNMENT-UNEP/WBANK PROJECT

1.3 MANDI GOBINDGARH STEEL CLUSTER

1.4 STRUCTURE OF THE REPORT

2. PROJECT APPROACH & METHODOLOGY .....19

2.1 APPROACH AND METHODOLOGY2.2 SELECTING TWO UNITS FOR DEVELOPING BANKABLE PROJECTS

2.3 DETAILED ENERGY AUDIT & SELECTION OF EQUIPMENT SUPPLIER

2.4 PREPARATION OF DPR & BANKABLE PROJECTS

2.5 DISCUSSIONS WITH EXISTING BANKERS OF SELECTED UNITS & RESPONSES

3. BANKABLE PROJECTS DEVELOPED..27

3.0 DETAILED PROJECT REPORT(DPR)

3.0.1 DPR-LAKSHMI STEEL ROLLING MILL.283.0.2 DPR-ROYAL STEEL ROLLING MILL543.1 DETAILED ENERGY AUDIT REPORT3.1.1 ENERGY AUDIT REPORT-LAKSHMI STEEL ROLLING MILL.80

3.1.2 ENERGY AUDIT REPORT-ROYAL STEEL ROLLING MILL..1033.2 IREDALOAN APPLICATION FORM (FILLED)3.2.1 LOAN APPLICATION FORM-LAKSHMI STEEL ROLLING MILL.1253.2.2 LOAN APPLICATION FORM-ROYAL STEEL ROLLING MILL152

APPENDIX 1 :DETAILED PROJECT PLANAPPENDIX 2 :LIST OF PARTICIPANTS AISRA/SRMAAPPENDIX 3 :LIST OF PARTICIPANTS AT MANDIGOBINDGARH MEETINGAPPENDIX 4 :STRUCTURED QUESTIONNAIREAPPENDIX 5 :SPECIFICATIONS FOR BRINGING OUT EE INTERVENTIONSAPPENDIX 6 :PRICE ESTIMATES FROM M/S LLOYD INSULATIONS (INDIA)PVT.LTDAPPENDIX 7 :QUOTATIONS RECEIVED FROM EQUIPMENT SUPPLIERS &MANUFACTURERS

APPENDIX 8 :LETTERS TO EXISTING BANKERS OF SELECTED UNITSAPPENDIX 9 :RESPONSE FROM SBI,MANDIGOBINDGARH,PUNJABAPPENDIX 10:LETTERS TO SBI,PROJECT 'UPTECH'MANAGERSAPPENDIX 11:IREDALOAN SCHEMEAPPENDIX 12:RESPONSE FROM MINISTRY OF STEEL ,GOVERNMENT OF INDIA.

CONFIDENTIAL

This document is the property of Deloitte Touche Tohmatsu India Private Limited andcontains confidential information that has been provided at your request. This informationshould not be disclosed in whole or in part without expressing written consent of the firm. This

document should not be duplicated or used, in whole or in part, except for evaluating thefirms proposal and should be returned upon request.

Proposal and should be returned upon request.


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Abbrev ia t i ons

AISRA All India Steel Re-rollers AssociationCO2 Carbon Di-OxideEE Energy Efficiency

ESCO Energy Services CompanyFIs Financial InstitutionsFO Furnace OilGEF Global Environment FacilityHSD High Speed DieselIREDA Indian Renewable Energy Development Agency LimitedLDO Light Diesel OilLSRM Lakshmi Steel Rolling MillM&V Measurement and VerificationMT Metric TonnePCB Pollution Control Boards

RSRM Royal Steel Rolling MillSBI State Bank of IndiaSEB State Electricity BoardSEC Specific Energy ConsumptionSFC Specific Fuel ConsumptionSIDBI Small Industries Development Bank of IndiaSME Small and Medium EnterpriseSPM Suspended Particulate MatterSRMA Steel Re-rollers Manufacturers AssociationSRRMs Steel Re-rolling Mills

TPH Tons per hourUNDP United Nations Development ProgramUNEP United Nations Environment Program


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Acknowledgements

Deloitte team expresses sincere gratitude for the help, support &encouragement provided by all - the experts in conceptualization of theproject and to the various stakeholders in carrying the project forward.

An innovative project like this would not have been possible without thesynergies provided by all and the financial support provided by UNEP RisoCentre. Guidance provided by the IREDA Core Group is acknowledged withgratitude.

Deloitte TeamDr. Naval Karrir DirectorMr. U.P.Singh - Energy Consultant

Mr. Prem Shankar - Energy ConsultantMr. Tarun Jindal Financial Consultant


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EXECUTIVE SUMMARY

In India, the iron & steel industry is one of the key sectors contributing towardsthe economic development of the country. India is the tenth largest producer

of the steel in the world. However, the intensity of the energy use in the steelindustry is high. Amongst the major steel producing countries , the intensity ofthe energy use as well as scope of energy saving is highest in India followedby China, Brazil, Poland, US, France, Japan and Germany.

The Small & Medium scale Rerolling Mills (SRRMs) sector in India,constitutes a significant link in the overall supply chain of steel in the country.According to a Comprehensive Survey of Re rolling Industry ( Source:Ministry of Steel ) , this sector comprises of more than 1200 working units ofvarious sizes. The share of the secondary steel producers is 57% of the totaldemand and with no major steel plant contemplated in the very near future;

the present share is likely to grow.

The SRRM sector has a definite edge over the major steel producers due totheir inherent capabilities of

Flexibility in production

Meeting the low tonnage requirements in various grades, shapes andsizes.

The direct energy consumed in the sector includes heating fuel (furnace oil,coal & natural gas) and electrical energy. The cost of the direct energy

consumed by SRRMs amounts to 25% to 30% of the production costs and75-90% of the value addition, depending upon the technology deployed andthe local conditions.

Studies and our experience in past has revealed the following significantfeatures characterizing the status of SRRMs in India:

SRRMs are continuing with the outdated technologies and practices

The awareness and information levels are very low , particularly on~ Energy Efficiency interventions which can improve Specific Energy

consumption (per ton of steel produced)~ Ways and methods to access the financial schemes to improveenergy efficiency

SRRMs have no informational / knowledge linkages to relevantinstitutions, research and engineering based developments

The sector is burdened with high taxes as well as high costs ofborrowings, lack of technical knowledge and capacity to obtain low costfinancing of energy efficient (EE) technologies.

The steel units in the SRRM sector perform operations as re-rolling, forging,foundry and arc furnace melting. These units, apart from being highly energy

intensive, pollute environment excessively.


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The present assignment, as part of the project Development of FinancialIntermediation Mechanisms for Energy Efficiency Investments in DevelopingCountries Brazil, India and China, supported by the World Bank / UNFoundation / UN Environment Program seeks to address two of the mostcritical barriers facing this sector i.e. Technological and Financial.

The assignment seeks to provide:

Expert advice to SRRMs in Mandi Gobindgarh, Punjab on the benefits ofusing Energy Efficiency interventions as a tool for becoming moreproductive & competitive. The advice would be based on techno economicstudy conducted at specified units to recommend suitable energy savinginterventions.

Assistance in financing costs in two SRRM units for implementing the

Energy Efficiency improvement interventions, recommended through thetechno-economic feasibility study. Financing would be done by developingtwo bankable projects for financing by IREDA (Indian Renewable EnergyDevelopment Agency Limited).

The methodology adopted for carrying out the assignment is depicted below

Build

Commitment

Increase

Understanding

Review

results

Secure

Financial

Commitment

Preparation of

BankableProject

Create

awareness

Identifying

potential

units

Undertake

Preliminary

Energy Audit

Preliminary Financial

Due Diligence

Discuss

OutputSecure EnergyManagement &

Implementation

commitment

Conduct

Detailed

Energy

Audit

The first phase of the assignment was aimed at Concept Selling.As part ofthe concept-selling module, the following activities were undertaken:

Project Kick-Off: start of the assignment, post signing of the contract withUNEP, a kick-off meeting was held amongst Deloitte, IREDA and

members of the Core Group to understand the specifics of the energyefficiency equipment financing scheme of IREDA and other specificrequirements for sanctioning the loan.

Preparation of a detailed Project Plan: Subsequent to this meeting, adetailed work plan for the project was prepared

Cluster Feedback: In order to create awareness about the UNEP-WBinitiative & to discuss the salient deliverables of the project in the SME

steel re rolling mills a meeting was organized with the members of the AllIndia Steel Re rollers Association (AISRA) and Steel Re rollers


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Manufacturer Association (SRMA). Both AISRA & SRMA are the apexSRRM Associations representing the interests of the steel re rolling unitsat the national level.The meeting aimed at:

1. Briefing participants on the UNEP/WB sponsored initiatives under theproject ,

2. Gauging their understanding & level of awareness on the needs forEnergy Efficiency (EE) programs in SRRMs

3. Assessing their readiness to undertake such initiatives

The participants recognized the experience and knowledge of the Deloitteresources in the SME sector, reposed faith in Deloitte and expressedwhole hearted support and cooperation to the project.

Association representatives from clusters other than Mandi Gobindgarh

wanted similar initiatives to be taken in other locations assuring full support& cooperation.

Meetings with Equipment suppliers & Furnace manufacturers:Prominent equipment suppliers and furnace manufacturers were contactedand through meetings with each one of them, salience of the project aswell as their involvement in providing solutions were discussed.

The following equipment suppliers & furnace manufacturers were part ofthe discussions:

1. Lloyd Insulations (India) Ltd., New Delhi2. Eurotherm DEL India Limited, New Delhi3. The Wesman Engineering Company Limited, New Delhi4. ENCON Thermal Engineers (P) Ltd., Faridabad5. Macro Furnaces, Faridabad

Strategic Meeting with various stakeholders at MandiGobindgarh: Afield visit to Mandi Gobindgarh was undertaken. During this visit, a half-daystrategic meeting was organized at Mandi Gobindgarh with various

stakeholders representing the prominent steel re rolling units of theclusters, industry experts , equipment manufacturers & suppliers , furnacemanufacturers and maintenance service providers .

The objective of the strategic meeting was to discuss energy efficiencyinitiatives that can be undertaken in the clusters and the correspondinginterventions that can be planned for improving energy efficiency inSRRM, the financing modalities and deciding on the action plan for fieldvisits / walk through audits.

The discussions at the meeting generated very encouraging response

from the SRRM units and proactive units were identified to undertake fieldvisits. The five proactive units identified to undertake field visits were:


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1. Bhambri Steels Pvt. Ltd.2. Vivek Re-rolling Mills3. Lakshmi Steel Rolling Mills4. Thakur Steel

5. Royal Steel Rolling Mills

Joint Field Visits: A team was formulated comprising of energy auditors& financial experts (from Deloitte), equipment suppliers and furnacemanufacturer ( M/s Lloyd Insulations (India) Ltd., New Delhi ) to carry outfield visits in the identified re rolling mills with following objectives :

1. To collect & validate the specific energy consumption data fromsecondary sources

2. To assess the present financial position of the various units3. To plan the interventions that could improve specific energy

consumption4. To calculate the optimal investment package and the corresponding

Return on Investments ( ROIs)5. To formulate the modalities and requirements of a Monitoring &

Verification (M&V) protocol

Details of the visits are included in the chapter 2.

Selecting two units for developing Bankable ProjectsAnalysis of the financial data & assessing the willingness of the units toundertake EE initiatives

The documents used for collecting financial data & analyzing the financialstanding of the SRRM unit included

1. Balance Sheet2. Manufacturing and Trading Account3. Profit & loss Account

Moreover, through interactive dialogue & discussions, an assessment wasmade on the willingness / pro activeness of the units to undertake the Energy

Efficiency initiatives by availing a loan from a Bank / FI .

Further, the experts on the team along with equipment suppliers &manufacturers analyzed the secondary data collected from the short listedunits during the joint field visits to assess the potential for improving SpecificFuel Consumption and reduction in the scale losses in each short listed unit.

Based on the above analysis wrt financial standing, pro activeness and thepotential to improve Specific Fuel Consumption in the short listed units, thefollowing units were selected for developing bankable projects on improvingEnergy Efficiency with financing from Banks/FIs.


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Lakshmi Steel Rolling Mills (LSRM)

Royal Steel Rolling Mills (RSRM)

Detailed Energy Audits & Selection of Equipment Supplier

A meeting was organized with the selected units to familiarize them with themodalities of the preparation of bankable project for improving specific fuelconsumption in the steel reheating furnaces.

Investment grade audits were conducted in the selected units to assess thepotential of energy savings that can be realized through energy efficiencyimprovement interventions. The interventions proposed to bring out EnergyEfficiency improvements include installation of :

1. Combustion Control Systems2. Temperature Control System

3. Recuperator and4. Change of the refractory & insulation

For interventions planned, a detailed set of specifications were drawn out forbringing about Energy Efficiency improvements in the furnace of the reheatingunits. Based on the chosen specifications , costs estimates were requestedfrom M/s Lloyd Insulations (India) Ltd., New Delhi ( with whom Joint Fieldvisits were conducted in the five short listed units earlier).Both the selectedunits were provided with the detailed estimates of the costs submitted by M/sLloyd Insulations (India) Ltd., New Delhi.

Feedback from selected units: Both the selected units expressed concerns onthe price of equipment & services offered by M/s Lloyd Insulations (India) Ltd.,New Delhi, citing it to be too high. Moreover, the selected units suggested thatthe equipment supplier should be selected on the basis of both the price aswell as the quantum of services it can offer.

Selected units recommended the names of the following equipment suppliers& furnace manufacturers.

1. Furmat Engineers (India) Pvt Ltd , Delhi2. Ubbi Engineering Works , Delhi3. Mercury Electrical , New Delhi

Invitation for sealed quotations from recommended equipment suppliers &furnace manufacturers

For the specifications chosen, sealed quotations were invited from the aboveequipment suppliers/ manufacturers who could carry out the implementationof the proposed Energy Efficiency improvement interventions


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Evaluation of the Quotation receivedThe quotations received from the three equipment suppliers & furnacemanufacturers were evaluated. The costs indicated by M/s Furmat Engineers(India) Pvt Ltd were found to be most competitive.

Joint Field visit to the selected units at Mandi Gobindgarh.Deloitte and M/s Furmat Engineers (India) Pvt. Ltd went for a joint field visit tothe selected units , with twin objectives to evaluate the degree of confidencethe selected units reposed on the capability of Furmat Engineers to provideservices as well as to mutually agree on the time frame under which theimplementation of the energy efficiency interventions could be undertake.

Both the selected units have reposed their confidence in M/s FurmatEngineers Pvt. Ltd and agreed on the SRRM operational downtime that would

be incurred for installation of EE interventions.

A unique methodology agreed herein to reduce the downtime of steel rerolling operation is to fabricate the modular structure of the reheating furnace,with all EE interventions, in a place alongside existing furnace and move themodular structure on to the base of the existing furnace.

Preparation of DPR and Bankable Projects

Preparation of DPRBased on the cost & time data agreed between the selected units and M/sFurmat Engineers Pvt. Ltd, Delhi Detailed Project Report (DPR)has beenprepared.Enclosed as part of chapter 3.

Discussions with existing Bankers of the selected units for financing of EEinterventions.

Based on the suggestions given by the IREDA Core Group during thepresentation of Inception Report , a field visit was undertaken to explore theopportunity of financing the EE interventions proposed with the existing

bankers of the selected units. The existing bankers of the selected units are :

M/s Lakshmi Steel Rolling Mills State Bank of India , Mandi GobindgarhM/s Royal Steel Rolling Mills - State Bank of Patiala, Madi Gobindgarh

Responses from the banks of the selected units

1. M/s Lakshmi Steel Rolling Mill SBI , Mandigobindgarh, Punjab

During the discussion with State Bank of India , MandiGobindgarh the BranchManager indicated the possibility of the project being financed under Project

UPTECH of State Bank of India . The Project UPTECH is an initiative of State

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Bank of India to promote Energy Efficiency in various sectors of economy inIndia.

2. M/s Royal Steel rolling Mills- State Bank of Patiala , Mandigobindgarh ,Punjab

The Branch Manager was not very enthusiastic about financing EnergyEfficiency interventions and informed that the schemes available for financingany loan scheme could be adopting while requesting for a loan to finance EEinterventions.

Financing option under Project UPTECH of SBI

Communications had been sent to officials of SBI managing project UPTECHat Delhi , Mumbai & Chandigarh.Though no written response has beenreceived from either State Bank of India , Mandi Gobindgarh or managers of

Project UPTECH , the informal telephonic discussions with the ProjectUPTECH managers has revealed that the Steel Sector is yet to be includedas a sector for financing Energy Efficiency initiatives in Punjab.

Financing EE interventions under IREDA Scheme

Based on the responses received from the banks , the selected units havebeen motivated to file in applications for financing EE interventions under theIREDA scheme.

Moreover, there is an opportunity for both of the selected units to reduce thecost of EE improvement investments by using part of the grant available withMinistry of Steel, Government of India under the UNDP - GEF project forcapacity building & promotion of EE in SRRMs.

We had initiated discussions with the Ministry of Steel , Government of Indiato provide interest subsidy to SRRM units which implement EE projects bytaking loans from agencies such as IREDA. We have received a positiveresponse from Ministry of Steel.

Suggestions provided by IREDA Core Group during our presentation of theInception Report at the 5thMeeting of India Core Group on August 25,2004 aswell as the guidance provided by UNEP-World Bank officials have beenutilized to carry the project forward. Inputs have also been drawn from theInterim Reports, of ICRA Developing Manual for appraising EnergyEfficiency Projects and Crestar Capital Designing Financial Structures &Financing Instruments for Energy Efficiency Projects in India for thepreparation of DPR.

The Executive summary of the DPRs as well as Energy Audit Reports havebeen included separately under relevant sections of chapter 3.

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CHAPTER 1- INTRODUCTION

1.0 Energy Efficiency Background

India is currently the worlds seventh-largest consumer of energy, sixth-largestsource of greenhouse gas (GHG) emissions and second-fastest growingsource of GHG emissions. The emissions are expected to grow at a rate of5% between 1990 and 2010. However, the per capita energy consumptionand emissions have remained relatively low at 0.3 tonnes of carbon perperson due to the large population.

The industrial sector constitutes roughly 40% of the total energy consumptionin India and approximately 65% of this consumption is attributed to the mostenergy intensive industries, namely, fertilizer, iron and steel, aluminum,cement and paper and pulp. The end-use energy efficiency levels in theseindustrial sectors again are very low as compared to the developed world .Consequently, with the growing energy demand, rising shortages andspiraling upward costs of energy, the energy efficiency improvements of theindustrial sector has gained national priority.

In India, the iron & steel industry is one of the key sectors contributing towardsthe economic development of the country. India is the tenth largest producerof the steel in the world. However, the intensity of the energy use in the steelindustry is high. Amongst the major steel producing countries , the intensity ofthe energy use as well as scope of energy saving is highest in India followed

by China, Brazil, Poland, US, France, Japan and Germany.

The Small & Medium scale Rerolling Mills ( SRRMs) sector in India,constitutes a significant link in the overall supply chain of steel in the country.According to a Comprehensive Survey of Re rolling Industry ( Source:Ministry of Steel ) , this sector comprises of more than 1200 working units ofvarious sizes. The share of the secondary steel producers is 57% of the totaldemand and with no major steel plant contemplated in the very near future;the present share is likely to grow.

The SRRM sector has a definite edge over the major steel producers due totheir inherent capabilities of

Flexibility in production

Meeting the low tonnage requirements in various grades, shapes andsizes.

Most of the Steel Re-rolling Mills (SRRMs) in the SME sector useconventional technologies, inefficient combustion systems, poor operating andmaintenance practices that leads to inefficient energy utilization andexcessive environmental air pollution (mainly SPM and CO2).

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Deve lop ing Financ ia l I n te r m ed ia t i on Mechan i sm s fo r Energy

Ef f i c iency Pro j ec ts in the S tee l Clus ter a t Mand i Gobin dgar h, Pun jab

due to their flexibility in production for meeting low tonnage requirements invarious grades, shapes and sizes to serve nichemarkets.

The SRRMs currently meet 70 % of the long product steel requirement ofthe country. The growth of the segment has been haphazard with outdated,

low-investment technologies. The operational and maintenance practicesfollowed by SRRMs are unscientifically planned and unmethodically executed.These units by and large have been funded through owners equity.

Most of the SRRMS in the SME segment function as rolling mills only, butthere are some units that operate as composite mills having Inductionfurnaces to produce steel ingots used as inputs for rolling. The direct energy-use in this sector includes fuels for reheating furnaces1 (furnace oil and coal),and electrical energy for running the rolling operation & lighting.

A majority of the energy losses in SRRMs are primarily in the re heating

furnaces due to use of inefficient combustions systems, lack of controlsystems to manage air-fuel ratios and temperature controls. These lead tohigher scale losses and low yields.

The direct energy consumed in the sector includes heating fuel (furnace oil ,coal & natural gas) and electrical energy . The cost of the direct energyconsumed by SRRMs amounts to 25% to 30% of the production costs and75-90% of the value addition , depending upon the technology deployed andthe local conditions.

Based on the energy audit studies, it has been estimated that the energy costin the SRRMs is in the range of 25 30% of overall production cost and thereis an energy saving potential of 30-35 % in operations.

To make the SME steel re rolling operations energy efficient, productive andcost effective a number of initiatives need to be undertaken to overcome thefollowing barriers:

Technological Barriers The SME steel re rolling mills haveconventional and inefficient technologies. The reason attributable to this isthe lack of awareness on efficient technologies that can be used to save

energy as well as the dearth of technological solution providers in thesector.

Financial Barriers Financing of energy efficiency projects in the SMEsectors is still underdeveloped in India. The leading banks and financialinstitutions (FIs) are reluctant to lend for individual EE projects due to lackof understanding of technical and financial aspects of new technologies.Also, at times, lack of sizeable investment portfolio and the necessarycollateral financial guarantee requirements of the commercial banks is abarrier. There is also a lack of domestic venture capital institutions and/orinstruments that can finance new technologies.

1 Natural Gas is currently not being used in the Mandi Gobindgarh cluster, though plans exist to use it

in future as a gas pipeline is planned for commissioning in the area.

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Trained Manpower - Due to lack of trained manpower and institutionalcapabilities for providing support on design, engineering andimplementation of energy efficient technologies and systems, theproductivity of the SME re rolling units have remained a dismal low.

Further, the cyclic nature of steel industry has forced the SMEs in thesector to look for short-term objectives & gains rather than long-term EEand productivity enhancement solutions.

The table below provides an overview of the various interventions that can beproposed in SRRMs to improve energy efficiency with corresponding energysaving potential.

Interventions Potential for Energy Saving

Installation of Recuperators 10-12%

Improving Furnace Insulation 12-15%

Installation of Temperature Controllers 10-12%

Controlling Air-Fuel Ratio 6-8%

Replacing Local Furnaces with New Furnaces 30-35%

1.2 The Assignment

The current assignment, as part of the project Development of FinancialIntermediation Mechanisms for Energy Efficiency Investments in DevelopingCountries Brazil, India and China, supported by the World Bank / UNFoundation / UN Environment Program seeks to address two of the most

critical barriers facing this sector i.e. Technological and Financial.

The proposed assignment seeks to provide:

Expert advice to SRRMs in Mandi Gobindgarh on the benefits of usingEnergy Efficiency interventions as a tool for becoming more productive &competitive. The advice would be based on techno economic studyconducted at specified units to recommend suitable energy savinginterventions.

Assistance in financing costs in two SRRM units for implementing the

Energy Efficiency improvement interventions recommended through thetechno-economic feasibility study. Financing would be done by developingtwo bankable projects for financing by IREDA (Indian Renewable EnergyDevelopment Agency Limited).

These units would showcase the modalities of financing energy efficiency inSME industrial units thus enabling large scale replication of EE measures invarious steel units in the cluster(s).

In order to do this, UNEP has appointed Deloitte to provide consultingservices. Deloitte is one of the worlds largest professional services firmshaving extensive experience of working in India. It has a specialized Energy &Environment Group based at Delhi having resources who have worked

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extensively in the SME units to improve energy efficiency leading toenvironment protection.

As part of the assignment, Deloitte would undertake the following in SRRMunits at Mandi Gobindgarh:

Assess the techno-economic feasibility of various technology interventionsthat can be utilized for enhancing energy efficiency and reducing energyconsumption

Develop at least two bankable projects for finance consideration toIREDA/Indian banks.

Finalizing suitable financial structures for the EE projects in the selectedunits, taking due consideration of IREDAs/other bank securityrequirements etc.

Preparing suitable energy efficiency baseline(s) and Monitoring andVerification (M&V) protocol that are agreeable to both the borrower(s) andthe lender.

1.3 Mandi Gobindgarh Steel Cluster

The SRRM sectorcomprises of about 1200(working) SRRM units

having various sizes /capacities in India (asdepicted in the map).Mandi Gobindgarh steel rerolling cluster is one of thelargest clusters in thecountry comprising ofabout 400 SRRMs. Thelocation of MandiGobindgarh, is in the Stateof Punjab. Besides

SRRMs, Mandi Gobindgarhalso has 60 induction arcfurnaces, 10 free forgingunits and 60 foundries.

Out of the 400 registeredSRRMs in the cluster approximately 300 are working2. Most of these (over60%) are small units having capacity of less than 20 tonnes per day (TPD),the balance have a capacity range of 20-80 TPD. In terms of ownership over80% of the units are partnership firms with less than 5% being private limitedcompanies. The balance being proprietorship firms. Approximately, 40 units in

2 The balance have closed down due to a variety of reasons, chief among them being inability of the

units to invest in technological upgrdation leading to cost uncompetitive ness.

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the clusters are composite mills i.e. they have rolling mills as well as inductionfurnaces having turnover in excess of Rs.250 million per annum.

This indicates that there are a number of units which are large but continue tobe conservative in their ownership pattern i.e. are either partnership firms or

proprietorship firms.

In terms of markets, most of the rolled products are in the form of bars, flatsand angels used primarily in construction sector. Due to the growth of theconstruction industry, especially in north Indian states, this cluster haswitnessed significant growth in the recent times. This trend is likely to continueas construction activity is very closely linked to the overall growth of GDP,which in turn is projected to be growing strong for India.

Most of the sale from the cluster is affected through some 300 traders inMandi Gobindgarh, final market of which includes the northern Indian states

like Punjab, Haryana, Himachal and Rajasthan. One of the reasons why thecluster has not been able to expand its market outside of northern India hasbeen due to lack of cost competitiveness arising from dearth of investments intechnology upgradations. Companies such as Rathi, Kamdhenu and Ambeyhave been able to expand nationally due to investments in improvedtechnology and energy efficiency.

Cost competitiveness is more pronounced in the SRRM as the industry workson wafer thin margins of 1-2% on a conversion cost of Rs.2300-2800 pertonne. The low margins have in recent times forced large players to invest inefficient technologies to reduce costs. The recent increase in central excisefrom 8% to 12% has further increased the pressure on margins necessitatingcompanies to look at ways and means to reduce costs. Investing in improvingenergy efficiency is increasingly being looked at as a viable option.

Energy utilization patterns at SRRMs in MandiGobindgarh

There are about 400 steel re-rolling mills in Mandi Gobindgarh. Previouslymost of the units were using Furnace Oil (FO) as fuel in reheating furnacesbut presently only about 20% units are operating on FO remaining are usingpulverized coal. The only reason of shifting from FO to coal is operating cost

of the furnace. At current rate FO costs about Rs.15/kg (GCV 10000 kcal/kg)while coal costs about Rs.4.2/Kg (GCV 6500 kcal/kg).

Most of the mill owners are ignorant about the demerits of coal usage ,likeincrease in scale losses resulting in lower yield, reduced life of refractoryleading to increase in furnace maintenance costs, reduction in effectivenessof heat exchangers/recuperators etc.

Specific fuel consumption (SFC) in FO fired furnaces varies between 40-45 lt.per ton of material heated. In coal fired furnaces SFC varies between 60-70kg per ton of material heated.

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1.4 Structure of the Report

The project report, is a deliverable under the assignment, providing details ofthe proposed approach and methodology, the DPR ( containing M&V protocol both technical & financial) , Energy Audit report and the IREDA application

forms (duly filled) for financing of EE interventions.

Suggestions provided by IREDA Core Group during our presentation of theInception Report as well as the guidance provided by UNEP-World Bankofficials have been utilized to carry the project forward. Inputs have also beendrawn from the Interim Reports, of ICRA Developing Manual for appraisingEnergy Efficiency Projects and Crestar Capital Designing FinancialStructures & Financing Instruments for Energy Efficiency Projects in India forthe preparation of DPR.

The report is presented in three sections other than the executive summary.

The first Chapter of the report provides a background to the study, itsobjectives, overview of steel re-rolling mills in the Mandi Gobindgarh clusterand the energy efficiency prospects in the cluster.

The second Chapter of the report delves in detail on the approach andmethodology that has been followed to achieve the objectives of theassignment.

The final Chapter ( Chapter 3) of the report includes the DPR, the EnergyAudit Report and IREDA Application forms (dully filled) for financing of the EE

interventions in the two selected units.

Appendixes have been provided for details on references provided in variousChapters of the report.

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CHAPTER 2 - PROJECT APPROACH & METHODOLOGY

2.1 Project Approach & Methodology

Project ApproachIn order to complete an important, multi-disciplinary project of this nature,Deloitte puts a lot of emphasis in designing a suitable approach and adoptinga proper methodology to achieve the defined objectives.

The assignment includes various interrelated critical areas that need to beworked on, simultaneously. It is, therefore, imperative that the sequence ofvarious activities is structured and processes visualized in a clear manner soas to coordinate the various inputs and outputs to achieve the desired results.For ease of execution, the scope of work for the study has been segregatedacross four distinct but interrelated modules (figure below).

M& VProtoco l

LoanAppl icat ionForm

Commerc ia lV iab i l i ty

TechnicalFeas ib i l i ty

Pro jec tCost ing

Discussions

w i t h

Equ ipmentManu fac tu re rs

Deta i ledEnerg y Audi t

Bui ldC o m m i t m e n t

P re l im ina ryEnerg y Audi t

P re l im ina ry

Financ ia lDu e

Di l igence

SecureC o m m i t m e n t

P lan Deta i ledEnerg y Audi t

Pro jec tK ick-Of f

Deta i ledWork P lan

Obta in Clus terFeedback

S t ra teg i cWorkshop

Commun ica te

w i t h p o t e n t i alS takeho lde rs

I n c e p t i o nReport

Techno Econom icFeas ib i l i ty s tud y

2 Bankab lePro ject Repor t

M o n t h 1 M o n t h 2 - 3 M o n t h 4

1 9


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Project Methodology

The diagram below graphically depicts the project methodology adopted forcarrying out various activties, that have been undertaken for generation of

bankable projects.

Build

Commitment

Increase

Understanding

Review

results

Secure

Financial

Commitment

Preparation of

BankableProject

The first phase of the assignment was aimed at Concept Selling.As part ofthe concept-selling module, the following activities were undertaken:

Project Kick-Off: start of the assignment, post signing of the contract withUNEP, a kick-off meeting was held amongst Deloitte, IREDA andmembers of the Core Group in the Office of IREDA on July 07, 2004. Theobjective of this meeting was to understand the specifics of the energyefficiency equipment financing scheme of IREDA and other specificrequirements for sanctioning the loan.

Preparation of a detailed Project Plan: Subsequent to this meeting, adetailed work plan for the project was prepared (enclosed as Appendix 1).The detailed work plan has ensured effective project management andmonitoring.

Cluster Feedback: In order to create awareness about the UNEP-WBinitiative & to discuss the salient deliverables of the project in the SMEsteel re rolling mills a meeting was organized at Delhi on July 12, 2004with the members of the All India Steel Re rollers Association (AISRA) and

Steel Re rollers Manufacturer Association (SRMA). Both AISRA & SRMAare the apex SRRM Associations representing the interests of the steel rerolling units at the national level. The meeting was very well attended andthe project was received with great enthusiasm by both the apexassociations. List of participants at the meeting enclosed as Appendix 2.

The meeting aimed at:

4. Briefing participants on the UNEP/WB sponsored initiatives under theproject ,

5. Gauging their understanding & level of awareness on the needs for

Energy Efficiency (EE) programs in SRRMs6. Assessing their readiness to undertake such initiatives

Create

awareness

Identifying

potential

units

Undertake

Preliminary

Energy Audit

Secure EnergyManagement &

Implementation

commitment

Discuss

Output

Conduct

Detailed

Energy

AuditPreliminary Financial

Due Diligence

2 0


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The participants recognized the experience and knowledge of the Deloitteresources in the SME sector, reposed faith in Deloitte and expressedwhole hearted support and cooperation to the project.

Association representatives from clusters other than Mandi Gobindgarhwanted similar initiatives to be taken in other locations assuring full support& cooperation.

Meetings with Equipment suppliers & Furnace manufacturers:Prominent equipment suppliers and furnace manufacturers were contactedand through meetings with each one of them, salience of the project aswell as their involvement in providing solutions were discussed.

The following equipment suppliers & furnace manufacturers were part ofthe discussions:

1. Lloyd Insulations (India) Ltd., New Delhi2. Eurotherm DEL India Limited, New Delhi3. The Wesman Engineering Company Limited, New Delhi4. ENCON Thermal Engineers (P) Ltd., Faridabad5. Macro Furnaces, Faridabad

Based on the discussions with manufacturers/suppliers of furnaces/controlsystems an action plan was formulated to work together in implementinginterventions to improve Energy Efficiency in SRRMs at Mandi gobindgarh,Punjab

Strategic Meeting with various stakeholders at MandiGobindgarh:A 5day field visit to Mandi Gobindgarh starting July 14, 2004 was undertaken.During this period, a half-day strategic meeting was organized at MandiGobindgarh with various stakeholders representing the prominent steel rerolling units of the clusters, industry experts , equipment manufacturers &suppliers , furnace manufacturers and maintenance service providers .The meeting was very well attended. Director NISST (National Institute ofSecondary Steel Technology) was also present in the meeting. List ofparticipants is enclosed as Appendix 3

The objective of the strategic meeting was to discuss energy efficiencyinitiatives that can be undertaken in the clusters and the correspondinginterventions that can be planned for improving energy efficiency in SRRM, the financing modalities and deciding on the action plan for field visits /walk through audits. The strategic workshop was followed by one to onemeetings with interested parties desirous of carrying the project forward, toanswer specific clarification on project initiatives.

An important component of the workshop was the circulation of astructured questionnaire (enclosed as Appendix 4).

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The discussions at the meeting generated very encouraging responsefrom the SRRM units and proactive units were identified to undertake fieldvisits. The SRRM units suggested that in order to expedite the evaluationprocess field visits may be undertaken by Deloitte, equipment suppliersand furnace manufacturers jointly. The five proactive units identified to

undertake field visits were:

1. Bhambri Steels Pvt. Ltd.2. Vivek Re-rolling Mills3. Lakshmi Steel Rolling Mills4. Thakur Steel5. Royal Steel Rolling Mills

Joint Field Visits: A team was formulated comprising of energy auditors& financial experts (from Deloitte), equipment suppliers and furnacemanufacturer (Lloyd Insulations (India) Ltd., New Delhi ) to carry out field

visits in the identified re rolling mills with following objectives :

1. To collect & validate the specific energy consumption data fromsecondary sources

2. To assess the present financial position of the various units3. To plan the interventions that could improve specific energy

consumption4. To calculate the optimal investment package and the corresponding

Return on Investments ( ROIs)5. To formulate the modalities and requirements of a Monitoring &

Verification (M&V) protocol

Observations from field visits ( walk through audits Deloitte team)

Sl.No

Particular BhambriSteel

VivekRerolling

LakshmiSteel

ThakurSteel

RoyalSteel

1 Annual Turnover (Rs./cr) 27 5.6 4 2.9 3

2 Fuel Used Furnace Oil PulverizedCoal

PulverizedCoal

Furnace Oil PulverizedCoal

3 Average Operation Per

Day (Hrs)

10 10 10 10 10

4 Average Production PerHour (tonne)

8 4 2.5 2.5 3

5 Sp. Fuel Cons. (SFC)(Ltr/Kg per tonne)

40 60 65 40 45

6 Scale Losses (%age) 2.5% 5% 7.5% 6% 5%

7 Product Mix Angles,Channelsand Flats

Bars Flats Bars SquaresandRounds

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2.2 Selecting two units for developing Bankable Projects

Analysis of financial data & assessing the willingness of the units toundertake EE initiatives

To understand and analyze the financial standing and credit worthiness of theShort listed SRRM units , a field visits was undertaken by the team to all thefive short listed units. The documents used for collecting financial data &analyzing the financial standing of the company included

1. Balance Sheet2. Manufacturing and Trading Account3. Profit & loss Account

Moreover through an interactive dialogue & discussions, an assessment was

made on the pro activeness of the units to undertake the Energy Efficiencyinitiatives by availing a loan from a Bank / FI.

Further, the experts on the team along with equipment suppliers &manufacturers analyzed the operational (secondary) data from the short listedunits to assess the potential for improving Specific Fuel Consumption andreduction in the scale losses in each of the short listed units.

Based on the above analysis wrt financial standing, pro activeness and thepotential to improve Specific Fuel Consumption in the short listed units, thefollowing units were selected for developing bankable projects on improvingEnergy Efficiency with financing from Banks/FIs.

Lakshmi Steel Rolling Mills (LSRM)

Royal Steel Rolling Mills (RSRM)

2.3 Detailed Energy Audits & Selection of Equipment Supplier

A meeting was organized with the selected units to familiarize them with themodalities of the preparation of bankable project for improving specific fuel

consumption in the steel reheating furnaces.

Investment grade audits were conducted in the selected units to assess thepotential of energy savings that can be realized through energy efficiencyimprovement interventions. Detailed findings of the Energy Audit are includedseparately in the Energy Audit Report. The interventions proposed to bring outEnergy Efficiency improvements include installation of :

1. Combustion Control Systems2. Temperature Control System3. Recuperator and

4. Change of the refractory & insulation

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For the interventions planned, a detailed set of specifications were drawn outfor bringing about Energy Efficiency improvements in the furnace of thereheating units,enclosed as Appendix 5.

Based on the chosen specifications , costs estimates were requested from

M/s Lloyd Insulations (India) Ltd., New Delhi ( with whom Joint Field visitswere conducted in the five short listed units earlier).Both the selected unitswere provided with the detailed estimates of the costs submitted by LloydInsulations (India) Ltd., New Delhi. Cost estimates from Lloyd Insulations(India) Pvt. Ltd., New Delhi , enclosed as Appendix 6.

Feedback from selected units on cost estimates: Both the units expressedconcerns on the price of equipment & services offered by M/s LloydInsulations (India) Ltd., New Delhi , citing it to be too high. Moreover, theselected units suggested that the equipment supplier should be selected onthe basis of both the price as well as the services offered.

The suggested services could include: installation / commissioning of theenergy efficiency interventions , providing guarantees on the improvements inthe Specific Fuel Consumption improvements & reduction in scale losses aswell as to provide an Annual Maintenance Contract (AMC) for maintenance ofequipment supplied.

Selected units recommended the names of the following equipment suppliers& furnace manufacturers.

4. Furmat Engineers (India) Pvt Ltd , Delhi5. Ubbi Engineering Works , Delhi6. Mercury Electrical , New Delhi

Invitation for sealed quotations from recommended equipment suppliers& furnace manufacturers

For the specifications chosen, sealed quotations were invited from the aboveequipment suppliers/ manufacturers who could carry out the implementationof the proposed Energy Efficiency improvement interventions (as per

specifications) in the reheating furnace and guarantee the savings in bothscale losses and Specific Fuel Consumption. A cost on the AnnualMaintenance of the equipment was also included in the quotations requested.

The quotations received are enclosed as Appendix 7.

Evaluation of the Quotation received

The quotations received from the three equipment suppliers & furnacemanufacturers were evaluated. The prices indicated by M/s Furmat Engineers(India) Pvt Ltd were found to be most competitive.

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Joint Field visit to the selected units at Mandi Gobindgarh.

Deloitte team and M/s Furmat Engineers (India) Pvt. Ltd went for a joint fieldvisit to the selected units viz M/s Lakshmi Steel Rolling Mills (LSRM) and M/sRoyal Steel Rolling Mills (RSRM). The visit was undertaken primarily with an

objective to evaluate the degree of confidence the selected units repose onthe capability of Furmat Engineers to provide services as well as to mutuallyagree on the time frame under which the implementation of the energyefficiency interventions could be undertake.

Both the selected units have reposed their confidence in M/s FurmatEngineers Pvt. Ltd and agreed on the downtime that would be incurred forinstallation of EE interventions.

A unique methodology agreed herein to reduce the downtime of steel rerolling operation was to fabricate the modular structure of the reheating

furnace, with all EE interventions, in a place alongside existing furnace andmove the modular structure on to the base of the existing furnace.

2.4 Preparation of DPR and Bankable Projects

Preparation of DPR

Based on the cost data & time frame for implementation of EE interventions,agreed between the selected units and M/s Furmat Engineers Pvt. Ltd, DelhiDetailed Project Report (DPR)has been prepared. Presented in Chapter 3.

2.5 Discussions with existing Bankers of the selected units for financingof EE interventions.

Based on the suggestions given by the IREDA Core Group during ourpresentation of the Inception Report , A field visit was undertaken to explorethe opportunity of financing the EE interventions proposed with the existingbankers of the selected units. The existing bankers of the selected units are :

M/s Lakshmi Steel Rolling Mills State Bank of India , Mandi GobindgarhM/s Royal Steel Rolling Mills - State Bank of Patiala, Madi Gobindgarh

Letters to State Bank of India , Mandi Gobindgarh and State Bank of Patiala,MandiGobindgarh are enclosed as Appendix 8.

Responses from the banks of the selected units

1.M/s Lakshmi Steel Rolling Mill SBI , Mandigobindgarh, Punjab

During the discussion with State Bank of India , MandiGobindgarh the BranchManager indicated the possibility of the project being financed under ProjectUPTECH of State Bank of India . The Project UPTECH is an initiative of State

Bank of India to promote Energy Efficiency in various sectors of economy inIndia.

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Response from the Branch Manager , State Bank of India, Mandi Gobindgarhenclosed as Appendix 9.

2. M/s Royal Steel rolling Mills- State Bank of Patiala , Mandigobindgarh ,

Punjab

The Branch Manager was not very enthusiastic about financing EnergyEfficiency interventions and informed that the schemes available for financingany loan scheme could be taken for requesting for a loan.

Financing option under Project UPTECH of SBI

Letters written to avail financing for EE interventions under Project UPTECH ,enclosed as Appendix 10.

Though no written response has been received from either State Bank ofIndia , Mandi Gobindgarh or Project UPTECH , the informal telephonicdiscussions with the Project UPTECH officials has revealed that the SteelSector is yet to be included as a sector for financing Energy Efficiencyinitiatives in Punjab.

Financing EE interventions under IREDA Scheme

Based on the responses received from the banks, the selected units havebeen motivated to file in applications for financing EE interventions under theIREDA scheme. The Filled up applications are presented in Chapter 3.Features of IREDA Loan Scheme enclosed as Appendix 11.

Moreover, there is an opportunity for both of the selected units to reduce thecost of EE improvement investments by using part of the grant available withMinistry of Steel, Government of India under the UNDP - GEF project forcapacity building & promotion of EE in SRRMs.

We had initiated discussions with the Ministry of Steel , Government of Indiato provide interest subsidy to SRRM units which implement EE projects bytaking loans from agencies such as IREDA. We have received a positive

response from Ministry of Steel.

Response from Ministry of Steel , enclosed as Appendix 12

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CHAPTER 3

BANKABLEPROJECTS

DEVELOPED

2 7


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Deve lop ing Financ ial I n t e rm ed ia t i on

Mechan isms fo r Energy E f f i c iency Pro jec ts i n

the S tee l Re- ro l l i ng C lus te r a t Mand i

Gob indga r h , Pun j ab , I nd ia

of

Lakshm i St ee l Ro l l ing Mi l l sMand i Gob indga rh ( Khanna) , Pun j ab , I nd ia

Deta i led Pr o j ect Repor t ( DPR)

&

Su b m i t t e d t o


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Deta i l ed P ro jec t Repor t Lakshmi Stee l Ro l l i ng M i l l s 29

Tab le o f Cont en t s

LI ST OF ABB REVI ATI ONS..30

ACKNOW LEDGEMENT..31

EXECUTI VE SUMM ARY.32

1 . I NTROD UCTI ON36

1.0 BACKGROUND OF COMPANY

1.1 MANUFACTURING PROCESS

1.2 EXPANSION &ENERGY EFFICIENCY IMPROVEMENT PLANS

1.3 Constitution Of The Unit1.4 Financial Standing Of The Unit1.5 Analysis Of The Audited Balance Sheet & Financial Ratios

2 . PROPOSED PROJECT 4 1

2.0 PROJECT OBJECTIVE :IMPROVING SPECIFIC ENERGY CONSUMPTION

2.1 Energy Efficiency Improvement Initiatives2.2 Reduction In Scale Losses2.3 SUSTAINABILITY CHECK :IMPACTS OF EE INTERVENTIONS ON

ENERGY/ENVIRONMENT/ECONOMICS)

2.4 Proposed Project Costs & Financial Details Of EE Interventions

2.5 Projected Balance Sheet After Implementation Of EE Interventions.

3. MONI TORI NG & VERI FI CATI ON PROTOCOL 51

ANNEXURE :1.1 COPIES OF BALANCE SHEETS ,MANUFACTURING &TRADING ACCOUNT &PROFITAND LOSS ACCOUNT (AVAILABLE IN HARD COPY)

ANNEXURES :2.1TECHNICAL DETAILS OF RECUPERATOR

ANNEXURE :2.2 TECHNICAL DETAILS OF REFRACTORY/INSULATION LINING

ANNEXURE :2.3 DIAGRAM OF FURNACE &PROPOSED INSULATION

Confidential

This document is the property of Deloitte Touche Tohmatsu India Private Limited and containsconfidential information that has been provided at your request. This information should not bedisclosed in whole or in part without expressing written consent of the firm. This document shouldnot be duplicated or used, in whole or in part, except for evaluating the firms proposal and should

be returned upon request.Proposal and should be returned upon request.


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Abbreviations

AISRA All India Steel Re-rollers AssociationCO2 Carbon Di-OxideEE Energy Efficiency

ESCO Energy Services CompanyFIs Financial InstitutionsFO Furnace OilGEF Global Environment FacilityHSD High Speed DieselIREDA Indian Renewable Energy Development Agency LimitedLDO Light Diesel OilLSRM Lakshmi Steel Rolling MillM&V Measurement and VerificationMT Metric TonnePCB Pollution Control Boards

SBI State Financial Institution of IndiaSEB State Electricity BoardSEC Specific Energy ConsumptionSFC Specific Fuel ConsumptionSIDBI Small Industries Development Financial Institution of IndiaSME Small and Medium EnterpriseSPM Suspended Particulate MatterSRMA Steel Re-rollers Manufacturers AssociationSRRMs Steel Re-rolling MillsTPH Tons per hourUNDP United Nations Development ProgramUNEP United Nations Environment Program


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Acknowledgements

Deloitte team expresses sincere gratitude for the help, support &encouragement provided by Management & staff of M/s Lakshmi Steel RollingMills (LSRM), and the various stakeholders in formulation of the project DPR.

This DPR would not have been possible without the guidance & informationprovided by all the stakeholders and the financial support provided by UNEPRiso Centre.

Deloitte TeamDr. Naval Karrir DirectorMr. U.P.Singh - Energy ConsultantMr. Prem Shankar - Energy ConsultantMr. Tarun Jindal Financial Consultant


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EXECUTIVE SUMMARY

IntroductionLakshmi Steel Rolling Mills(LSRM) was incorporated on 22.02.1971

registered under number 16/09/34006. The unit started its commercialproduction in the same year manufacturing M.S. Flat & Bars . The customersof the unit include big public sector undertakings, Govt. & Semi Govt.undertakings. The unit is presently producing all sizes of Flats and isoperational 300 days a calendar year.

Lakshmi Steel Rolling Mills (LSRM) is situated at Mandi Gobindgarh (Khanna), Punjab , India. LSRM comes under district Ludhiana and TehsilKhanna

Manufacturing ProcessThe raw material is obtained in the form of Iron & Steel (Ship Breaking) /Ingots and fed into re-heating furnace. This re-heating furnace is coal fired,which is maintained at a temperature ranging between 500 to 1400 degrees.The material is charged through a pusher into one end of the furnace and theheated material is manually taken out at the other end . The heated material isfed into rolling mill for conversion into a desired output i.e flats or bars.

Sources of raw materialThe raw material (Iron & steel ship Breaking / Ingots ) is procured locallythrough traders & commission agents .The traders/ agents get the raw

material from places like Bhavnagar (Gujarat) , Bhilai (M.P) , Dubai ,Singapore , Russia , S. Africa (Durban) ,W . Africa (Gambia , Sanagel) etc.

Customers & marketsThe Finished product of the unit (LSRM) is mainly sold through traders /commission agents operating out of Mandi Gobindgarh . Traders /Commission agents mainly sell the finished products in the states like Punjab, Haryana , Himachal Pradesh (H.P) ,Uttar Pradesh (U.P) ,Jammu & Kashmir(J&K) ,Delhi and Rajasthan.

Expansion & Energy Efficiency improvement Plans

The unit presently plans to take advantage of the growing secondary steelmarket by increasing its production capacity from the present 2300tons/annum to 3500 tons/ annum. Moreover, the unit has realized that there isan ample scope in improving the Specific Fuel Consumption per ton of theproduct output, if control systems are placed in the furnace and heat of thefurnace properly utilized. The unit is proactively considering to undertake EEinterventions to improve its Specific Fuel Consumption .

Constitution of the UnitThe unit, Lakshmi steel Rolling Mill (LSRM) is registered under theConstitution of Proprietorship (having SSI Registration no. 16/09/34006) and

CST Registration no. 45248811) based on the provisions of Companies Act


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1956. Mr. Vinod Vashisht enjoys the proprietorship of Lakshmi Steel RollingMill (LSRM) having Pan number AAHPV5203D and a Net worth of Rs 70 lacs.

Project Objective : Improving Specific Energy Consumption (SFC)Objective of the project is to reduce Specific Fuel Consumption (SFC) per ton

of the product output at Lakshmi Steel Rolling Mill (LSRM) by improvingfurnace efficiency. Presently the SFC of reheating furnace is about 75 kg ofpulverized coal per ton of material heated. After implementing the EnergyEfficiency (EE) improvement, interventions it is estimated that the SFC wouldreduce to 45 kg/Ton.

EE interventions proposed to improve SFC at LSRM include :

1. installation of recuperators to recover waste heat from the exiting fluegases

2. Installation of air / fuel ratio control systems to achieve efficient

combustion3. Installation of temperature control system to reduce scale losses and4. Changing the insulation/ refractory in the furnace to conserve the heat

losses from the skin of the furnace

Sustainability Check : Impacts of EE interventions on Energy ,Environment & Economics

Impact on Energy ConsumptionDue to reduction in SFC of reheating furnace from 75 kg/ton to 45 kg/ton therewould be reduction in coal consumption by about 57.5 tons/annum. It is apositive impact leading to conservation of scarce energy resources.

Environmental Impact:Since there would be reduction in coal consumption of the mill , it would resultin annual CO2 reduction of about 130 tons/annum. The reduction in theemissions of carbon dioxide ( a Global Warming gas) is a positive impact.

Economic ImpactThe proposed project would bring in monetary saving of about Rs. 8.74lacs/annum. Also there would be rise in capacity utilization of mill resulting in

enhanced productivity. The enhanced productivity would have a positiveimpact on generation of new employment opportunities in the sector.

2.4 Proposed Project Cost & Financial details of EE interventions

Investment

Cost of proposed EE interventions Lac Rs. 17

Cost of installation, comissioning Lac Rs. 6.5

Taxes (sales tax + excise) @20% Lac Rs. 3.40

Total investment Lac Rs. 26.90

Promoters investment (20%) Lac Rs. 5.38

Loan (80%) Lac Rs. 21.52


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Projected Balance Sheet after implementation of EE interventions

Item Year

1 2 3 4 5 6 7

Paid-up Capital 68 78 76.5 75 73.5 72 70.5

Net Worth 97 131.5 125.2 118.9 112.6 106.3 100Term Loans 22 43.5 39.2 34.9 30.6 26.3 22Other Loans 7 10 9.5 9 8.5 8 7.5Total Capital Employed 97 131.5 125.2 118.9 112.6 106.3 100Fixed Assets 23.5 40.5 37.5 32 28 23 21Total Assets 124 141 138 133 129.5 125 122.5Debt equity Ratio 0.43 0.69 0.64 0.59 0.53 0.48 0.42Debt Service CoverageRatio (DSCR) of theCompany 3.01 0.97 1.02 1.07 1.13 1.20 1.25Current Ratio 3.73 3.68 3.57 3.46 3.31 3.26 3.30

Turnover 323.44 462.06 462.06 462.06 462.06 462.06 462.06Capacity utilisation 21% 30% 30% 30% 30% 30% 30%

Profit before Depreciationand Taxes (PBDT) 10.21 8 8 8 8 8 7.9

Net Profit 1.9 2.66 3.05 3.44 3.83 4.21 4.50% Net Profit to Total Equity 3% 3% 4% 5% 5% 6% 6%

% Net Profit to Total CapitalEmployed 2% 2% 2% 3% 3% 4% 5%

Monitoring & Verification Protocol

There are mainly two types of Monitoring and verification required in Steel re-rolling SME units.

Technical Monitoring & VerificationThis project is an energy efficiency project to reduce specific energyconsumption of steel re-rolling mills. SEC can be directly measured throughthe fuel/energy consumption and quantities of the product output.

Fuel (coal) consumption will be directly measured through weighment. Thequantities of the product output can be also measured by weight.Procurement records and production logs can be used for cross verification

purposes.

Hence, Technical M & V would formulate a list of variables from records ofwhich the actual savings can be calculated. This would help in tracking theproject w.r.t. objective of EE.

Financial Monitoring & VerificationThis would help the financial institution to monitor payment schedule. Afinancial M&V has been proposed which can include following in consultationwith the financing institution (FI)/ Bank.


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1. Early Warning Reports: These reports can be generated on aweekly or monthly basis depending on the Financial Institutionspolicy.

2. Periodic Reviews: This would entail a detailed credit review of

the units financial statements. These reviews can be conductedperiodically by the Financial Institution on financial ratios whichwould indicate the financial health of the units.

3. Project Progress Reports: Periodic (time interval agreed withthe Financial Institution) progress reports can provide informationon production, sales, inventory, receivable, profitability, etc. of theproject funded by the Financial Institution. Any externalitiesaffecting/ expected to affect energy savings such as low capacityutilization, decline in sales, accumulation of inventory, decrease inorders in hand or lower profits than anticipated can be taken up

with the unit by the Financial Institution.

4. Periodic Visits: Each assisted unit can be visited as per the FIspolicy on periodical project / company visits. Such a visit wouldprovide the Financial Institution with a first hand view of theproject progress to date.

Hence financial M&V protocol would help in periodic assessment/review of the financial health of the unit, so that a corrective action canbe taken in a timely manner.


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1 INTRODUCTION1.0 Background of Company

IntroductionLakshmi Steel Rolling Mills(LSRM) was incorporated on 22.02.1971registered under number 16/09/34006. The unit started its commercialproduction in the same year manufacturing M.S. Flat & Bars .The unit enjoysa good name & reputation for its products in Punjab and nearby states .The

unit is continuously making efforts to improve the quality of its products. Thecustomers of the unit include big public sector undertakings, Govt. & SemiGovt. undertakings. The production and sales of the unit are constantlyincreasing. The products of the unit are in good demand. The unit is presentlyproducing all sizes of Flats and is operational 300 days a calendar year.

Geographical LocationLakshmi Steel Rolling Mills (LSRM) is situated at Mandi Gobindgarh (Khanna), Punjab , India. LSRM comes under district Ludhiana and TehsilKhanna. The distance of the unit (LSRM) from the nearest Railway Station isabout 5 Kms and from the nearest Airport (Chandigarh) is about 70 Kms. The

nearest Grid (PSEB) from the unit (LSRM) is about 5 Kms .

1.1 Manufacturing ProcessThe raw material is obtained in the form of Iron & Steel (Ship Breaking) /Ingots and fed into re-heating furnace. This re-heating furnace is coal fired,which is maintained at a temperature ranging between 500 to 1400 degrees.The time of heating a particular kind of raw material is adjusted in the furnace,to allow the material, to reach a uniform temperature (throughout its crosssection).

The material is charged through a pusher into one end of the furnace and the

heated material is manually taken out at the other end . The heated material isfed into rolling mill for conversion into a desired output i.e flats or bars.In therolling mill section , the rolls are preset to achieve the required size andshape of the finished product. The finished product is then passed over thecooling bed to bring down its temperature. Moreover , in the rolling mill , theselection of rolls and number of passes the heated material is made to make ,depends upon the size and shape of the product to be produced.

Sources of raw materialThe raw material (Iron & steel ship Breaking / Ingots ) is procured locally

through traders & commission agents .The traders/ agents get the raw


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material from places like Bhavnagar (Gujarat) , Bhilai (M.P) , Dubai ,Singapore , Russia , S. Africa (Durban) ,W . Africa (Gambia , Sanagel) etc.

Customers & marketsThe Finished product of the unit (LSRM) is mainly sold through traders /

commission agents operating out of Mandi Gobindgarh . Traders /Commission agents mainly sell the finished products in the states like Punjab, Haryana , Himachal Pradesh (H.P) ,Uttar Pradesh (U.P) ,Jammu & Kashmir(J&K) ,Delhi and Rajasthan.

Block Diagram of the re-rolling operation

Raw Material Storage

Gas Cutting of Raw Material

Loading at Charging Pusher

Heating in Reheating Furnace at 1200-1250oC

Hot Material Exit from Furnace

Rolling

Cooling Bed

Storage

Bunching and Bundling

Dispatch

Technical Know-how & Marketing

The unit is in touch with technical consulting institutions like National Instituteof Secondary Steel Technology (NISST) situated at Mandi Gobindgarh

(Punjab) and Punjab State Council for Science & Technology , Chandigarh toensure quality output of its products.

Experienced operators (foreman) have been employed to run the re rollingoperations and also for the management of the workforce.

The unit enjoys a good reputation in the steel cluster at Mandi Gobindgarh forits management skills and quality product. There has been a consistentincrease in the demand of its products in the market. In other words, the unitdoes not experience any problems with regards to the marketing of its finishedproducts. Hence, there are no idle inventories accumulated within the unit.


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1.2 Expansion & Energy Efficiency improvement PlansThough small expansions have been done in the past, the unit presently plansto take advantage of the growing secondary steel market by increasing itsproduction capacity from the present 2300 tons/annum to 3500 tons/ annum.

Moreover, the unit has realized that there is an ample scope in improving theSpecific Fuel Consumption per ton of the product output, if control systemsare placed in the furnace and heat of the furnace properly utilized. The unit isproactively considering to undertake EE interventions to improve its SpecificFuel Consumption , which in turn would also improve its capacity utilizationfrom the present 20% to 30%. The costs of EE interventions as estimated bythe unit are about Rs.30 lacs.

1.3 Constitution of the UnitThe unit, Lakshmi steel Rolling Mill (LSRM) is registered under theConstitution of Proprietorship (having SSI Registration no. 16/09/34006) and

CST Registration no. 45248811) based on the provisions of Companies Act1956.

Mr. Vinod Vashisht enjoys the proprietorship of Lakshmi Steel Rolling Mill(LSRM) having Pan number AAHPV5203D and a Net worth of Rs 70 lacs.

Personal details of the proprietor:

Name: Mr. Vinod vashisht

Date of Birth: 18-07-1953

Fathers Name: Sh. Ramesh Chander Vashisht

Present Address: Lakshmi Steel Rolling Mills

G.T. Road , Opp. Power House

Khanna , Punjab

Permanent Address: Lakshmi Steel Rolling Mills

G.T. Road , Opp. Power House

Khanna , Punjab

Telephone No.: 91-1628-226415, 226416

E-mail ID: [email protected]

PAN No.: AAHPV5203D

Educational Qualification: Graduation

Experience :20 Years experience of managing Steel Rolling

Mill

Membership of other organisations/ institutions: President

AISRA (All India Steel Re-rollers Association), ChairmanGolden Grain Club.


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1.4 Financial Standing of Lakshmi Steel Rolling Mill (LSRM)Based on the analysis of Balance Sheet, Profit & Loss Account and Trading &Manufacturing Account (copies enclosed as Annexure 1.1) followinginformation has been tabulated to evaluate the financial standing of LSRM.

Items Amount in Lakh Rs

2003 2002 2001

Gross Sales 323.44 308.57 343.8

Cost of Good Sold 259.4 249.89 269.25

Net Sales 316.01 306.81 342.42

Net Profit 1.9 2.02 2.26

Current Assets 99.57 92.75 119.31

Current Liabilities 26.73 16.22 16.21

Net Fixed Assets 23.73 20.17 24.65

S. Debtors & Advances 48.64 46.3 57.38

S. Creditors 26.73 16.22 16.21

Purchases 264.13 244.89 274.66

Long Term Debt (secured & unsecured) 29.08 14.97 55.27

Capital 67.94 82.42 73.22

Depreciation 5.03 5.25 0.56

Interest 3.28 4.41 7.76

Closing Stock 50.23 45.06 53.96

Loan Repayments 0.11 40.3 0

PBDIT 10.21 11.68 10.58

Ratios

Current Ratio 3.73 5.72 7.36

Fixed Asset Turnover 13.32 15.21 13.89

Debtors Turnover 6.65 6.66 5.99

Inventory Turnover 5.16 5.55 4.99

Credit Turnover 9.88 15.10 16.94

DSCR 3.01 0.26 1.36

Interest Coverage 3.11 2.65 1.36

ROCE 0.02 0.02 0.02

Nb:

Depreciation on fixed assets has not been provided in the books ofaccounts during the year.

Central Excise duty is accounted on the basis of debits in the PLAregister.

Bankers: The unit deals with State Bank of India (SBI), Mandi Gobindgarh

Branch ,Punjab India.


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Banking Arrangements / detailsName of the Bank Bank Limits

(Lac Rs.)Rte of Interest(%)

AmountOutstanding(Lac Rs.)

State Bank of India C/C 19.5 11 19.5

State Bank of India Book Debt A/C 5 11 4.62

1.5 Analysis of Audited Balance Sheet (for 3 years) and Financial Ratios

Audited Results (Amountin Lac Rs. )

Item

Year 12003

Year 22002

Year 32001

Paid-up Capital 67.94 82.42 73.22

Net Worth 97.02 97.39 128.49

Term Loans 22.08 7.88 24.93

Other Loans 6.99 7.09 30.35

Total Capital Employed 97.02 97.39 128.49

Fixed Assets 23.47 20.17 24.65

Total Assets 123.75 113.61 144.72

Debt equity Ratio (Current) 0.43 0.18 0.75

Debt equity Ratio (After Proposed Loan from IREDA) 0.81 0.50 1.11

Debt Service Coverage Ratio (DSCR) of the Company 3.01 0.26 1.36

Current Ratio 3.73 5.72 7.36

Turnover 323.44 308.57 343.80

Capacity utilisation 21% 19% 20%

Profit before Depreciation and Taxes (PBDT) 10.21 11.68 10.58

Net Profit 1.9 2.02 2.26

% Net Profit to Total Equity 3% 2% 3%

% Net Profit to Total Capital Employed 2% 2% 2%


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2 PROPOSED PROJECT2.0 Project Objective : Improving Specific Energy Consumption (SFC)Objective of the project is to reduce Specific Fuel Consumption (SFC) per tonof the product output at Lakshmi Steel Rolling Mill (LSRM) by improvingfurnace efficiency. Presently the SFC of reheating furnace is about 75 kg ofpulverized coal per ton of material heated. After implementing the EnergyEfficiency (EE) improvement, interventions it is estimated that the SFC would

reduce to 45 kg/Ton.

EE interventions proposed to improve SFC at LSRM include :

1. Installation of recuperators to recover waste heat from the exiting fluegases

2 Installation of air / fuel ratio control systems to achieve efficientcombustion

3 Installation of temperature control system to reduce scale losses and4 Changing the insulation/ refractory in the furnace to conserve the heat

losses from the skin of the furnace

It is important to note that apart from the improvements in SFC, theimplementation of EE improvement measures would also result in reduction ofscale losses. The scale losses are the loss of top surface metal due to flaking/ burning of the top crystalline metallic layer of the metal. Presently theaverage scale loss in the unit is 7%. It is expected that there would be at least1-2 % reduction in scale loss by maintaining optimum desired furnacetemperature.

2.1 Energy Efficiency (EE) Improvement InterventionsEE interventions proposed to increase the SFC in the unit are discussed

briefly here. For details please refer the energy audit report.

Air / fuel ratio controllerIn the existing re heating furnace there is no provision to vary air/fuel flow rateand to control the excess air levels. This leads to inefficient combustion insidethe furnace leading to higher fuel consumption. Moreover , the excess air(more than theoretical air) in the furnace leads to excessive heat loss thusincreasing fuel consumption. It is proposed to replace the existing combustionsystem with a self proportionating burner system that not minimizes excess airlevels and hence reduces the corresponding dry flue gas losses.


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The proposed air / fuel ratio control system consists of a motorized butterflyvalve for air/fuel control. A feedback impulse signal is taken by the systemfrom the temperature controller which senses the furnace temperature. Afterthe desired/ set temperature is achieved, flow of both air and fuel is reduced.Thus leading to improvements in Specific Fuel Consumption. Saving in fuel on

account of reduction in dry flue gas loss has been estimated to be 17 Tonsper annum and the corresponding monetary saving would be about Rs.0.91lac per annum.

Installation of a recuperatorA recuperator is a heat exchanger that can capture the waste heat from theexiting flue gases. The captured waste heat can be used to preheat the airthat is utilized for combusting the fuel through a burner system in a furnace.

At LSRM , no recuperator has been installed to recover heat from flue gasesfor preheating the combustion air . It is recommended to install a recuperator

so that heat of flue gases may be recovered for pre-heating combustion air.Installation of recuperator also helps in increasing flame temperature whichimproves combustion and increases heat transfer efficiency. Combustion airtemperature of 300 oC can be achieved by installing the recuperator. Annualfuel saving on this account has been estimated to be about 21 Tons of coal.Corresponding monetary saving would be Rs. 1.10 lac per annum.Specification details provided at Annexure 2.1

Changing the refractory / furnace insulationAverage skin temperature of the reheating furnaces at LSRM was found to beabout 168 oC , resulting in higher radiation losses. The radition losses accountfor higher fuel consumption as more fuel is required to maintain the desiredtemperature in the furnace. It is proposed to improve furnace insulation bychanging refractory/insulation to reduce the radiation loss and heat-up time.

Annual fuel saving by changing the refractory / furnace insulation has beenestimated to be about 53 tons. Corresponding monetary saving onimplementation of this EE intervention has been estimated to be about Rs.2.74 lac per annum. Specification details provided as Annexure 2.2 & 2.3.

Installation of temperature control system

For steel re rolling operation , the input raw iron / steel needs to be heated tothe rolling temperature , wherein the metallurgical properties of iron allow achange in the crystalline structure making it possible to form the metal into adesired shape , a flat, bar or a rod. This rolling temperature varies from 1175 1200 degrees Centigrade. However , maintaining a temperature higher thanabove stated rolling temperature leads to metal loss in form of iron losses aswell as results in higher fuel consumption. Hence , it is appropriate to maintainthe temperature in a reheating furnace to a desired level.

At LSRM ,no temperature control system has been installed to controloperating temperature of furnace. Operating temperature of furnace was

found about 1400o

C while desired operating temperature is about 1180o

C.An automatic low & high firing temperature control system may be installed in


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furnace to control the operating temperature. After installing the controller,operating temperature can be maintained at 1180 oC. Annual monetary savingon this account has been estimated to be about Rs. 1.35 lac.

2.2 Reduction in Scale Loss

Apart from the energy savings, the energy efficiency measures suggestedwould also result in reduction of scale losses. Scale losses (ie. loss of materialdue to burning of the top layer of the steel ; calculated as difference ofmaterial at input of furnace and finished product) vary depending upon qualityand the size of raw material being used. Scale losses for various types ofinput materials vary between 6 to 8%. At LSRM , the annual average of scalelosses is about 7%. It is expected that there would be at least 1-2 % reductionin scale loss by maintaining optimum desired furnace temperature throughinstallation of a temperature control system. Average annual production of themill is about 2300 tons. Taking a conservative estimate even if there is 1%reduction in scale losses, there would be about 23 tons of material saving per

annum.

2.3 Sustainability Check : Impacts of EE interventions on Energy ,Environment & Economics

For Sustainable Development of the unit , it is essential to evaluate theimpacts of the proposed EE interventions on the energy , environment andeconomics of the project.

Impact on Energy ConsumptionDue to reduction in SFC of reheating furnace from 75 kg/ton to 45 kg/ton therewould be reduction in coal consumption by about 57.5 tons/annum. It is apositive impact leading to conservation of scarce energy resources.

Environmental ImpactSince there would be reduction in coal consumption of the mill , it would resultin annual CO2 reduction of about 130 tons/annum. The reduction in theemissions of carbon dioxide ( a Global Warming gas) is a positive impact.

Economic ImpactThe proposed project would bring in monetary saving of about Rs. 8.74lacs/annum. Also there would be rise in capacity utilization of mill resulting in

enhanced productivity. The enhanced productivity would have a positiveimpact on generation of new employment opportunities in the sector.

2.4 Proposed Project Cost & Financial details of EE interventions

Investment

Cost of proposed EE interventions Lac Rs. 17

Cost of installation, comissioning Lac Rs. 6.5

Taxes (sales tax + excise) @20% Lac Rs. 3.40

Total investment Lac Rs. 26.90

Promoters investment (20%) Lac Rs. 5.38

Loan (80%) Lac Rs. 21.52


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Schedule of DepreciationYear 1 Year 2 Year 3 Year 4 Year 5

Equipment Name Burner

Investment Lac Rs. 3

Equipment life Years 5% 20 20 20 20 20

Depreciation LacRs./annum 0.6 0.6 0.6 0.6 0.6

% 35 35 35 35 35Tax benefit on depreciation (A) Lac

Rs

Documents

Feasibility Steel Mill