African Power Plant Avoids $20,000,000 in Hidden Costs

Situation: An operating power plant in Africa, not meeting its rated heat output, was seeking to borrow money to fund an upgrade and initial payments for a Long Term Maintenance Agreement from an OEM. The bank, considering lending money to the power plant, was concerned about the cost of the proposed LTSA and the stated guarantees.

Task: Faced with a complex LTSA, the bank turned to DMS to determine the true costs of the agreement to evaluate whether or not the agreement would meet the needs of the plant and the bank.

Solution: With the contact and the plant’s current and future operating conditions, DMS Services created a base line model in our advanced DMS: Power software . This review immediately showed there was a discrepancy between the proposed agreement and the operations of the plant as there would be considerable “Extra Work” required within the terms of the agreement.

Extra Work is difficult to quantify without the use of a model taking into account all aspects of an agreement and analyzing the various probably scenarios for each plant. The DMS software does this quickly and efficiently and DMS was able to review the base-line as well as additional relevant scenarios for the client.

The predicted cost of the agreement was actually in the middle of the range of scenarios. If the plant were to change its current operations of the turbine, as requested by the OEM, and insist on only refurbished parts for each inspection, the cost would be almost 50% less than the stated agreement price.

If the plant were to continue with the current operational profile and use new parts for each inspection, the cost would be 50% more than the stated agreement price.

The agreement as proposed was not suitable as the plant could not change its operational plans, the choice of new or refurbished parts was left up to the OEM and under the agreement, all performance guarantees would be forfeited due to operational parameters.

This detailed knowledge, with quantitative analysis supporting each scenario, allowed the agreement to be renegotiated to the satisfaction of the bank and its client.