Request For Proposal:

Enviro-Plant Project

Joint Venture Investment Opportunity:

Air Pollution Control Equipment for two 700MW

Fossil Fuel Power Plants in Niezhny Novgorod

Date: 10-27-97

Project Code: EID372-G1

 

 

 

 

 

 

Table of Contents

1 Introduction

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2 Background Information

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2.1 The Company

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2.2 The Firm

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2.3 Niezhny-Novgorod Power

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3 The Opportunity

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3.1 Market Conditions

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3.2 Political Atmosphere

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3.3 Return on Investment

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4 Proposed Intentions

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4.1 Responsible Workerís Pay

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4.2 Environmental Priority

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4.3 Russian Industrial Development

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4.4 The Future of the Industry

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5 The Proposed Enviro-Plant Deal Structure

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5.1 Ownership

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5.2 Debt and Equity

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5.3 Trustees

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5.4 Workers Unions, Materials and Services

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5.5 Environmental Considerations

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5.6 Growth and Expansion

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5.7 Alternative Energy

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5.8 Exit Strategies within the Next 10 Years

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6 Conclusion

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  1. Introduction

This Request for Proposal seeks international participation by well-known and qualified corporations in an air pollution joint venture project. The aim of the Enviro-Plant project is to radically reduce the levels of SOx, NOx, and particulate matter (ash) exhausted into the atmosphere by the two plants.

Some of the important advantages to participating in this project include:

  1. Joint Venture in the first air pollution control project of its kind in Russia. As such, it will lead to many new business opportunities in the future for participants that can lead the way for growing opportunities.
  2. Well-educated resourceful and cheap labor which could construct most of the needed equipment in Russia, thus creating the potential of substantial earnings due to exports, sale to third parties, etc.
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    2. Background Information

    1. The Company
    2. The Niezhny-Novgorod Power Authority was founded in 1992 when public utilities in Russia became open to private ownership. Now, the NNPA is responsible for the majority of the electric power provided to the area southeast of Moscow.

      Supervising RFP Project Officer: Roxanne Jacoby

      Director of Human Relations: Alexander Strashny

      Director of Design and Efficiency: Javier Velez

    3. The Firm
    4. The NNPA is primarily concerned with the maintenance and daily operations of its two power plants. Any external dealings with firms foreign or domestic are delegated to the Cooperative Union Consulting Circle (CUCC). This consulting firm has a tradition of successful ventures and is a leader in the local market of engineering and consulting services. In addition to these merits, the CUCC holds some of the shares in the NNPA and thus does have a strong desire to see to it that the company succeeds. However, they do not deal with the everyday problems of power generation.

      Director of Foreign Relations: Sean Cusack

      Director of Information: Kimberly Tines

    5. Niezhny-Novgorod Power

    At the heart of the NNPA stand the actual power plants, located at the intersection of the Volga and Oka Rivers, a few hundred miles south-southeast of Moscow. Each individual plant is capable of producing approximately 700MW of power. The source of heat for the power cycle comes from coal mined in local veins in the Moscow Coal Basin, which is then burned in wall-type boilers to create the steam cycle that turns the turbines.

     

     

  4. The Opportunity
    1. Market Conditions
    2. The growing need for expansion has never been greater in the Russian Federation (RF) than it is at the moment. The industrial marketplace is on a short-term decline, and materials and labor are coming to a nadir; however, electrical power consumption has not declined at anywhere near this temporary decrease. This shows the dependency of the country on steady, efficient energy. Older power plants throughout the Former Soviet Union are growing out-of-date and are becoming unable to fulfill their requirements of power supply to the surrounding areas. In addition, their environmental standards are horrendous, and the areas around each for hundreds of miles are feeling the weight of heavy air and even soil pollution. CO2 emissions from the Russian Federation alone exceed 2 billion metric tons each year, and the statistics are rising. There needs to be a new power company located near the central Moscow area that can fulfill the ever-growing needs of the electricity power-hungry populace and can stand as an example to others in the environmental field.

    3. Political Atmosphere
    4. Past declarations and laws regarding taxes and environmental standards have been far from perfect in the Russian Federation. Tax rates for workers and for employers in power stations have even reached rates of 148% with no sign of an end, until recently. With new developments in legislation, there have been made priorities to change this state of being such that power companies will be in a much more financially stable situation. Laws are in the works so that foreign investment will be encouraged, by means of tax breaks or other subsidizations. In addition, the tax of 1 part per .75 parts of income that a Russian worker takes home will be revised completely. Other forces are at work here bringing about these changes, such as the nearly 50 trillion rubles owed to the countryís workers by the government. If the Russian Federation is to survive, this kind of legislative reworking is absolutely necessary. It is therefore lucrative to take advantage of this positive change and be the first to take it into account when making a financial investment into Russian industry.

    5. Return on Investment

    With the status of the industry as it is now, investing in the NNPA is like investing in a stock that is about to hit its lowest point ever before becoming a bull market into the next millenium. Nevertheless, investing in an industry that has been proven to remain separate even from national economy and is determined to be an absolute necessity to the existence of the peoples of Russia can only guarantee success. Leaders in technology, examples to the environmental community, and supporters of the rights of maltreated workers can only gain the support of the whole world. Think of how the world sees these qualities in the USA. The World Bank, the Russian Federation Government, and the local peoples we serve surely must support such a venture!

     

     

  5. Proposed Intentions
    1. Responsible Workerís Pay
    2. In the spirit of the proposed conditions upon the Niezhny-Novgorod Power Authority, it is imperative that the laborers that are affiliated with the power plant receive their due wages. This is something that the Russian government cannot guarantee them, so any workers that can find a steady job that actually pays must work harder and with more spirit than those that receive no pay for their troubles. Indeed, there will be many offers to choose from, and for the cost of the average wage of the US equivalent of $155/month, we will receive the choice workers in the nation. It is also considered to be of sound investing potential to forward some of the pay to the local coal miners that are responsible for the supply of fuel for the NNPA. This will guarantee working conditions perhaps even if they stop mining because of government cuts and taxes, and will provide for a strong vertical capital affiliation that will pay off in the long run.

    3. Environmental Priority
    4. The NNPA is dedicated to the preservation of the environment far above the standards set by the other plants in the nation. We must all be able to breathe clean air and our children should all grow up not eating food grown in polluted lands. Technology exists that makes it possible to remove the harmful chemicals and particulates from the output of the plant furnaces. It is our desire to be a role model for the other plants in the Russian Federation that a cost-effective, profitable alternative exists to clouding the nation with a black cloud of untreated pollution.

    5. Russian Industrial Development
    6. It is as important to the success of the project to spur Russian Industrial Development as it is to actually implement the changes in the power plants themselves. As stated before, the political and economical climate is ripe for investment, and therefore is also subject to positive assistance. Then, the materials and the labor required for the power plant and any structural or technical changes to it will be available from purely Russian sources. Not only will we be taking advantage of the choice materials and labor specified earlier by the current political climate of the nation, but we will also be spurring industrial growth exactly when we wish it to be so: after our investment.

    7. The Future of the Industry

    Not only is the NNPA interested in continuing the use of the coal-based power plants in Niezhny-Novgorod, but it is also interested in expanding to new horizons. This expansion may come in two possible forms: changes in the current mode of power production, or spread of power production to new areas, or both. New types of power creation are being researched everyday, and it is important to keep up to date with the newest and the most vanguard. Therefore, connections in other countries with alternate sources of information are encouraged to submit proposals for integration of new technologies. In addition, there may be opportunities in the near future for the NNPA to expand its boundaries beyond the Niezhny-Novgorod area to, perhaps, Moscow or some other major urban area

     

     

  6. The Proposed Enviro-Plant Deal Structure
    1. Ownership
    2. The control the Enviro-Plant is to be split up as per the following:

      20% Trustees of the NNPA (already own)

      40% Trustees of the CUCC (already own)

      40% One Foreign Investor

    3. Debt and Equity
    4. The method of payment within the above payment sharing is as follows:

      40% Bonds (debt)

      60% NNPA Stock (equity)

      The capital investment itself is to be broken down as follows:

      20% NNPA and CUCC

      80% Foreign Investor

    5. Trustees

There will be 12 members of a Board of Directors of the joint venture:

      1. NNPA
      2. CUCC
      3. Foreign Investor
    1. Workers Unions, Materials and Services
    2. The workers of the NNPA are to be paid no less than the minimum wage set by the current workers unions there. In addition, some percentage of the unpaid wages of the coal miners in the local supplying towns must also be subsidized. Choices of workers and percentages of minersí pays are subject to negotiation or joint decision after negotiation.

    3. Environmental Considerations
    4. The power plants of the NNPA are to uphold the regulations set forth by the European environmental requirements of power industries. A level of pollution far below current is also required such that any current damage to the local environment may be retroactively minimized by simple lack of present air pollution.

    5. Growth and Expansion
    6. When the NNPA expands to new markets, or makes new acquisitions, this will not affect the affiliation with a foreign investor still in control of their share of the NNPA project.

    7. Alternative Energy
    8. Any information available to the foreign investors is to be brought to the attention of all parties within the NNPA project in regularly scheduled meetings designed to discuss the progress and direction of the company.

    9. Exit Strategies within the Next 10 Years
    10. The investor shall not sell the stock or bonds of the NNPA to any persons or organizations other than the NNPA or the CUCC or those approved by a joint meeting of the two. If after 10 years the investor wishes to liquidate their investment and no longer remain in control of their portion of the company, it may be done in 20% segments of the value of the company on the year this process begins. These segments may be sold to the NNPA and the CUCC yearly at a meeting of the entire project group.

       

    11. Conclusion

By November 18, 1997, we seek proposals for the above-described plan for the Enviro-Plant venture.

We wish that, as much as possible, equipment and parts manufactured for this project be produced and assembled within the Russian Federation or from various reliable international sources at minimal cost.

We seek the transfer of technologies involved and related to the project; thus we are open to negotiation with the investors over licenses.

Fully detailed pollution control process and financial analysis for the next 5-10 years should be provided in the proposal.

We seek a period of no less than 3 years for work completion on the two plants, with minimum electricity power disruption. We are confident that the project will complete on schedule given its substantial line of credit from the government of the Russian Federation, the World Bank, and a multitude of other financial institutions eager to invest in it.

We look forward to answering any questions you may have regarding the RFP. Please inquire via electronic mail. In addition, we shall soon be available for teleconferencing or by on-line IRC by the week of November 10th, 1997.