Valuation of a Flood-Damaged Hydro Project Under CIRP – Case Study

Hydropower projects are inherently complex, and their valuation becomes even more challenging when construction is disrupted by natural disasters. That’s exactly what happened in this case: a flood-damaged hydroelectric plant, partially constructed, was admitted to Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC).

This case study outlines how RNC was engaged to perform a practical valuation—despite equipment loss, incomplete civil works, and market disruptions. If you’re a lender, investor, or insolvency professional managing infrastructure assets under distress, this case provides actionable insight.

The hydroelectric project in question was a mid-scale plant still under construction at the time of a catastrophic flood. Key infrastructure like:

• The intake dam

• Underground tunnels

• And the powerhouse

…were all severely damaged. Much of the installed equipment was washed away, and the site became inaccessible due to landslide-affected roads and submerged structures.

Admitted into CIRP, the project needed to be valued for lender recovery and resolution planning

1. Inaccessible Site and Equipment Loss

The flood had washed away turbines, transformers, and critical machinery. The powerhouse was still underwater when the valuation was initiated. On-site inspection was difficult, and drone or satellite data had to be relied upon.

2. No Power Purchase Agreement (PPA)

There was no active PPA, and any previously signed agreement had expired. Without a guaranteed buyer for the electricity, revenue forecasts became speculative.

3. Market Imbalance in Power Supply

India’s power market was already experiencing an oversupply situation. With renewable energy costs dropping, hydroelectricity was less competitive, especially in states with low tariffs.

4. Expired Statutory Clearances

Any resolution applicant would have to reapply for environmental approvals, safety licenses, and reinitiate vendor contracts—adding cost and time delays.

5. Geological Risks and Cost Escalation

Flooding had weakened geological foundations, raising new engineering risks. The cost of completing the project was now uncertain, with potential delays pushing the estimated completion timeline by years.

From an investor’s lens, this project was a high-risk, capital-intensive recovery with:

• Unclear regulatory standing

• No guaranteed cash flow (due to no PPA)

• Rising costs for civil restoration and re-equipment

• Poor market sentiment for hydro energy

Even interested buyers would demand a significant discount, leading to an impairment in recoverable value.

Given the severity of the disruption, a pure income-based approach (like DCF) was unsuitable. We opted for a going-concern valuation based on asset value, factoring in:

• Existing civil work salvage value

• Cost of balance-of-plant (BoP) completion

• Market discounting for risk and regulatory resets

 Step-by-Step Valuation Process

1. Data Collection

• Engineering reports

• Satellite and drone images

• Insurance and contractor documents

2. Stakeholder Interviews

• Resolution professionals

• Engineers and former EPC contractors

• Lenders’ internal assessment teams

3. Asset-Based Valuation

• Civil works: Dam, tunnels, power house (adjusted for damage)

• Plant & Machinery: Scrapped vs salvageable

• Cost escalation estimates for BoP completion

4. Discounting for Risk

• Longer time to recommissioning

• Legal/regulatory renewal timelines

• Low revenue certainty without PPA

What the Final Valuation Report Enabled

✅ Fair value estimation of ₹X Cr (range)
✅ Helped lenders set realistic reserve price
✅ Equipped the Resolution Professional (RP) to invite informed bidders
✅ Avoided overestimation and future failed auctions

This valuation served as a practical benchmark to help lenders recover debts while ensuring compliance with IBC guidelines.

Lessons Learned

• In cases of physical disaster, asset-based valuation is more accurate than cash flow modeling.
• Market dynamics (tariff, demand, alternatives) must influence discounting rates.
• Early engagement with licensed valuers saves time and improves CIRP outcomes.

Read more: Steel Plant Valuation Under CIRP: Asset-Based Approach Explained

RNC specializes in valuation of power plants, industrial assets, and infrastructure under CIRP, liquidation, and M&A scenarios. With pan-India experience and SEBI-registered professionals, we bring practical and defensible valuation to the table.

Call us: 9737033380
Email: bd@rakeshnarula.com

1. What approach is used to value flood-damaged infrastructure under CIRP?

An asset-based approach, factoring civil salvage value, risk adjustment, and BoP completion costs, is preferred.

2. Why was income-based valuation rejected in this case?

Due to absence of PPA, uncertain timelines, and market volatility, DCF was unreliable.

3. Can a damaged hydro project still be sold?

Yes, but with steep valuation discounts to account for repair costs and legal risk.

4. What risks affect hydro project valuation under IBC?

Regulatory delays, geological risk, expired contracts, and low power tariffs.