RPower synchronizes 300MW unit, aims at 1840MW capacity

Reliance Power on Tuesday announced that it has synchronized the 300 megawatts (MW) phase I of its 600 MW Butibori Power Project near Nagpur with the electricity grid. Commissioning of the second unit of the power project is expected to be completed by the end of this calendar year, revealed a company statement.

In an interview with CNBC-TV18, JP Chalasani, CEO, of Reliance Power said that the unit is ready for power generation and is likely to increase its volumes by one and half times its generation capacity in April. He is satisfied with the operating performance of the Rosa unit. The company is also expecting a solution on the gas procurement issue for the Samalkot project very soon.

Meanwhile, Chalsani denied all reports on the land acquisition issue in Jharkhand.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: What does synchronize mean, you start generating power?

A: Yes, we have started generating power, we connected to the grid and now it is ready for generation of power.

Q: What does this mean in terms of the total generation that you will do in terms of volumes in the current year?

A: Right now we are already operating at 1,200 MW at Rosa. They charge another 25% extra to that and the 300 MW unit is also coming up here. Another 300 MW unit will come up in the next three-four months and the generation capacity then will be 1,500 MW. So, we are almost generating one and half times the capacity that we had on April 1.

Q: In the analyst meet after the results you had indicated that it was likely in the second quarter. You perhaps have done it ahead of schedule, what led to that, are you seeing execution improvement also? What is the status of other projects, are you on track with respect to the Samalkot project for December?

A: If you see each of the 300 MW units we are doing at Rosa, this is the fifth 300 MW unit coming up in Butibori and for each one of these, we have maintained our track record with respect to execution.

We have completed this unit itself within 21 months from the time we started construction of the boiler. It is the shortest ever time required from that point of view.

I think the second important factor is, this being an industrial area, we wanted to create a very compact power project and we set up a 600 MW unit in an area of 275 acres.

Thirdly, if you see the track record of operating performance of this unit, it has been running at 102-103% load factor on continuous basis. I think from all angles, from project execution point of view and operating performance wise, these units are doing very well. Financial result wise we had seen Rosa doing exceedingly well in the last year. I think from all three front, execution, operating performance and financial performance, we are on track.

Q: You said your power generation in the current year will be 1.5 times the previous year. Exactly in terms of megawatts what will that mean?

A: As of today we have 1500 MW. We will add another 300 MW and it will be 1840 MW including it. Then as soon as gas is available, we would start generating power from Samalkot. You know that we are ready.

Q: That's two units of the 2400 MW?

A: Yes we are ready. With gas availability, we can start generating power.

Q: How close is the gas availability you think?

A: Let's wait and see. Efforts are put in at various levels in the government to find a solution to the gas issue. We are optimistic that some solution should come out shortly.

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Q: What about the signing of the fuel supply agreement (FSA) with Coal India? I believe that has gone through. How does that change the arithmetic of margins and even capacity utilization at Rosa?

A: With Rosa, we had no issues earlier. We will continue to have no issues here because we are actually lending at the project level by importing coal and meeting the shortage. That's the reason why we are able to maintain 101-102% of float factor at Rosa.

Q: But margins should improve perhaps?

A: Margins have been improving. You have seen the performance.

Q: Once coal from Coal India is available, at least to the extent of 65%, will that improve margins?

A: Rosa is a pass through project. So the margins to that extent are not really affected by where the coal is coming from. But, tariff would come down with more domestic coal coming in.

Q: What about Butibori, the new FSA? A lot of the companies, particularly PSUs have been opposing the 65% trigger limit. You have been a veteran in this space. Do you think 65% is a practical solution and the appropriate middle ground or do you think it should be higher, anywhere between 65-85%?

A: Let's understand that the trigger level is for the purpose of paying liquidating damages for not supplying coal. That's a trigger level. It is not a level at which Coal India is going to supply. Coal India is centering in FSA for full quantity of the coal for which coal linkage has been given.

Once the fuel supply agreement is signed, both parties need to work together on day to day basis to ensure that maximum coal is supplied to you. This 65% trigger level and 85% trigger level is purely a point under which if coal supply comes, Coal India would be willing to pay the penalty from that angle.

Q: There is also the possibility of importing and pulling, do you think pulling is practically possible, people who have the current FSAs, will they be agreeable to it or do you think that is a practical solution at this point?

A: I won't like to comment on the issue at this stage. As far as Rosa is concerned, we have already been pulling at the plant level and we would continue to do so.

Q: Will any of the Reliance Power, the Butibori power be supplied to the distribution systems of Reliance Infra?

A: Reliance Infrastructure has conducted medium-term competitive bidding some time back, where we won 50% of the first unit in the competitive bidding row and we signed the power purchase agreement (PPA) with them at a tariff of Rs 4.80 paisa.

The balance power would be supplied to the industrial consumers because if you remember, this project itself was won through a competitive biding for industrial consumers, X amount of discount to the local distribution company tariff. It's a unique model being done for the first time that a group captive power plant is being developed through a bidding route.

Q: This makes matters better for Reliance Infrastructure and its users because that distribution company had to depend on rivals to supply power including Tata Power, so do things get resolved? I am asking you from a consumer point of view because Bombay has a lot of consumers benefitting or using the Reliance Infrastructure grid?

A: More important fact is that this project is within Maharashtra. To that extent, the reliability of power supply within Maharashtra will improve. Therefore, having a PPA with the government distribution company, which is a part of the Maharashtra transmission system, would definitely improve the reliability of power supply for consumers in Bombay.

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Q: Gas availability has been an issue and that is something that has been worrying investors for quite some time. While D6 has been continuously falling and we have heard of plans that Reliance Power perhaps is looking to build an LNG terminal, do you think at current LNG prices, it is feasible, what is the cost of production if you take the imported gas at the current prices?

A: Gas itself is a big subject to speak about. Yes, we did announce it and we are working towards creating a facility. As I said, gas supply and gas pulling in various aspects are at different stages of discussion now and is at various levels of the government.

I can only say at this stage we are confident that some solution for the capacity which is ready to operate would come out shortly and these capacities would be put to use for the country as a whole.

Q: So you are expecting some decision on the gas pulling thing in the next few weeks or so?

A: I am always optimistic.

Q: If you can give us something concrete. Should we expect something by July or August, something pretty quickly?

A: I think in today's discussion, I would like to restrict to sharing the news of Butibori.

Q: Your listeners are investors in Reliance Power and they will always be happy if Samalkot is functioning quickly. If you can give us some idea that a solution is perhaps likely before the June-September quarter, it is out of equal interest, people don't look at Butibori only, they look at Reliance Power shares and they look at power as a sector. So if you can give us some indication of when that might start, it will be useful stock information?

A: I wouldn't like to put a deadline but I will be definitely optimistic and a solution would be found for the gas issue, not jut Samalkot but for the rest of the capacity in the country. These capacities would be put to use very quickly.

Q: What about the incentives or the measures that were announced yesterday by the RBI, whereby you can swap domestic rupee loan with forex loans at the current dollar-rupee level of 57 plus and dollar interest rates. Is that an attractive preposition? Are you contemplating anything like that?

A: We have always been optimistic in the financing angle. For example, in Sasan we already did that. First we financially closed the domestic financial institutions, then went ahead and traded the external commercial borrowings (ECB) for refinancing these projects.

Within a constant basis we keep seeing and its not just you did the financial closure once and you keep quite at the stage. We keep looking at opportunities to reduce the cost of funding in the right direction, from time to time.

Q: Not just on a project basis or the company basis, as a veteran do you think ECB is an attractive preposition at this point, given the kind of mood we have in financial markets? Do you think the cost of raising the money is lucrative enough for people to go out and raise funds at this point?

A: No it depends on the source of funding for this. We just did the PV plant, at 40 MW it is the country's largest PV plant. We went ahead and did the financing, just US agreement ADB (Asian Development Bank), just two of them and the cost of funding is substantially attractive compared to any other source of funding on this.

So it also depends upon what project you are doing and what are the sources of ECB. It makes a substantial difference. I don't think you can really put a generalized saying about ECB versus domestic finance.

Q: Another news that had come in, which might be some source of irritant for you, land acquisition in Jharkhand was an issue. Can you update us on whether that has been resolved?

A: Absolutely not. In fact that's a simple false alarm on that particular day by a local reporter. The local villagers wanted to meet the revenue officials there. The concerned officer had reached about 5 hours late. So they were irritated about the late meeting. It had nothing to do with respect to the land acquisition.