The chief financial officer was looking at the spreadsheet ruefully.
“This project is never going to make a profit”
“Say that again,” said Ahmed.
“I have said it a dozen times already, my friend. This project is a loser, from day one and until eternity”
“But it is my dad’s pet project,” protested Ahmed.
The CFO sighed, but he was close enough to the Big Man that he could afford to retort, “Then I should tell your dad that he should be content to live with an expensive, money-sucking pet for 25 long years”
They were discussing the proposed waste-to-energy project, the largest of its kind in the country. The plant would consume a massive 5000 tons of household waste every day and generate considerable amounts of power – enough to supply one hundred thousand homes!
Ahmed’s dad ran one of the largest business conglomerates in the country and he had been specifically chosen for this project by the Prime Minister himself. The allotment was considered a prestigious honor for the company – it was going to keep a large city clean, empty its landfills, and produce large amounts of sustainable electricity. How much more responsible and patriotic can a company become!
That was all well. But when the company’s finance honcho was tasked with the financials, the project’s sheen started fading.
“Let me tell you the big numbers once again, young man, “ said the finance head, “Total project cost: $500 million, project IRR: negative, payback period: Never”
“But there are waste-to-energy plants successfully running, with the same technology in many countries in the world,” protested Ahmed.
“Well, there you are right,” said the finance guy, “My research also showed large waste-to-energy plants operating worldwide. But their financials are rather hazy. Besides, those countries have policies, incentives, and electricity prices that are very different from ours.”
“So what can make the project viable?”
“Now, we are talking. I had the same question, and here is the simple answer: If the government is willing to double the price they pay for electricity purchased from the project, your dad will at least have his head above water, and could even be swimming in profits if he is lucky”
“Double!” cried Ahmed, “No way. The Prime Minister will be thrown out of office if he doubled the price of electricity”
“Ah, you misunderstand me,” countered the finance guy, “I only said that the government should buy the electricity from us at double the price. You see, this electricity will only be 5% of the total used in the province to which the city belongs. So, the government can continue selling electricity to the citizens at the same price”
“Hmmm…”. It was beginning to dawn on Ahmed, “But still, wise man, there’s that 5% for which the government has to absorb the extra cost. That could be enormous, if it is all added up, and year after year.”
“My young friend, Ahmed. I have a suggestion for the Prime Minister, which your dad through his articulation and persuasion skills can convey. The PM keeps electricity price the same but increases the tipping fee paid by each household to the government-run waste collection company by 10%…” He held up a hand as Ahmed started saying something, and continued, “I know you what you are going to say. And you are wrong. You see, it is just a simple matter of human psychology. In this country, people will protest against even a small increase in the price of electricity, which they consider a public commodity, but have your trust in me when I say this, the same masses will be happy to shell out a lot more to get junk out of their home, which they regard strongly as their personal space”
Ahmed stared at the CFO for a long time, and then muttered admiringly, “Now I understand why dad doesn’t want to lose you”