Statutory compliance and remaining life of an AFBC boiler
A chemical plant owns a 25 TPH atmospheric fluidised bed combustion boiler installed in 2012 at ₹18 crore. The current replacement cost new of an equivalent boiler is ₹24 crore. The design life is 20 years. The last hydro test was three years ago, the IBR certificate has expired, and the boiler tubes show erosion. The economiser needs replacement, and a new low-NOx burner is required. The estimated cure cost is ₹2.1 crore for tubes and economiser and ₹0.9 crore for the burner. The boiler is running at 55% load. The valuer estimates that, after the cure, the boiler will have eight years of remaining life; without the cure, it cannot legally operate. A buyer is unwilling to complete the cure before the sale. The seller asks for a going-concern value.
1. Determine the physical depreciation and remaining life, and explain why age-life may not be appropriate.
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Age-life calculation.
Chronological age = 12 years.
Design life = 20 years.
Age-life depreciation = 12 ÷ 20 = 60%.
Remaining life = 8 years.
Why age-life alone is not sufficient.
The boiler has expired IBR certification, tube erosion, and a missing low-NOx burner. Its condition is not average for a 12-year-old unit. A buyer cannot legally operate it without the cure. The valuer should use a condition-based remaining life: after tubes, economiser, and burner replacement, the boiler is expected to have eight years of remaining life. Without the cure, the remaining life is not eight years in any usable sense; the asset is non-operable and may have only scrap or component value.
Conclusion. The 60% age-life figure happens to match the post-cure remaining life of eight years, but the valuer should still disclose that the result is condition-based, not a mechanical age-life calculation. If the tubes were not replaced, a shorter remaining life, perhaps three to five years, would be more appropriate.
2. Compute the going-concern value after cure costs, stating the treatment of the 4-month downtime.
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RCNLD after cure.
RCN = ₹24.00 crore.
Remaining life ratio = 8 ÷ 20 = 40%.
RCNLD = ₹24.00 crore × 0.40 = ₹9.60 crore.
Deduct cure cost.
Tubes and economiser ₹2.1 crore + low-NOx burner ₹0.9 crore = ₹3.0 crore.
Going-concern indication = ₹9.60 crore − ₹3.0 crore = ₹6.60 crore.
Downtime. The four-month outage is a real economic cost if the buyer bears it. It should be quantified as lost contribution during the outage, using the 55% load and reliable margin data, and deducted separately. If the plant is already shut or the buyer can schedule the outage in a normal shutdown window, the cost may be lower. If margin data is unreliable, the valuer should disclose the omission rather than invent a number. The cure cost above covers equipment and installation only; it does not include permit delay, inspection fees, or penalty.
3. What premise should be used if the buyer refuses to cure before sale, and how should the valuer report it?
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Premise. If the buyer will not complete the cure before sale, an unconditional going-concern value is not supportable. The boiler is not legally operable, so the valuer should use an as-is where-is premise, with the cure cost and permit risk deducted, or a liquidation/scrap premise if the buyer cannot obtain certification. The going-concern figure of ₹6.60 crore assumes the cure is completed and the boiler is certified.
Reporting. Present two scenarios:
- Cured going-concern value: ₹6.60 crore before downtime, subject to IBR certification and installation of the low-NOx burner.
- Uncured as-is value: based on realisable value of the boiler components, scrap, and any reusable parts, likely well below ₹6.60 crore.
State clearly that the uncured value is not a discount to the cured value; it is a different asset condition and legal status.
Recommendation. The seller should complete the cure or place the ₹3.0 crore plus downtime cost in escrow and provide an indemnity for certification risk. The valuer should not allow the going-concern figure to be used for financing without those conditions.