Import of RLNG to help serve power ind better: GMR Infra

The Cabinet Committee on Economic Affairs (CCEA) Wednesday approved reverse bidding method for gas-based power plants for imported gas. GAIL has been given the responsibility of importing gas to supply it to the 31 stuck power plants at a concession.The government will auction the gas via a reverse bidding process to ensure that power tariffs do not go up. Each plant can bid up to 30 percent of its plant load factor (PLF).Importing regasified liquefied natural gas (RLNG) for stranded gas power plants is an extremely welcome move and relief to power sector and the banking sector, said Madhu Terdal, Group CFO, GMR Infra in an interview to CNBC-TV18."We will be coming out of a problem area, we will be able to service the entire debt at least and contribute to the stalled power industry," said Terdal.According to this process the subsidy would now be available to distribution companies and the bidding would be conducted by MSTC, which would begin at Rs 5.5 a unit. Such a reverse bidding auction would not only help revive 31 projects, with a capacity of 14,305 MW but also aid 12 additional power plants, currently working at less than 30 per cent of the plant load factor.Terdal said the Rs 5.5 per unit would not allow recovery of rupee debt  for them but one would have to see if cost of operation and maintenance (O&M) & interest costs will be part of this Rs 5.50/unit. However, Terdal hopes that the current pricing policy would allow recovery of O&M costs.This move would help their PLF, which for GMR’s gas based plants is currently at zero percent, said Terdal.

Below is the transcript of Madhu Terdal’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What is the sense you are getting at GMR itself, is this viable, do you expect finally that your plant will operate at least at 30 percent?A: Of course one has to wait to get little more details on exactly how it is going to work out. However, to begin with I can say that it is an extremely welcome move, it will give a big relief not only to the power sector but also to the entire banking industry, which was on the verge of getting into a big quantum of the non-performing assets (NPAs).

We are completely relieved. How much money as a developer we can make is a second part but what is important today is that we will be coming out of a problem area, we will be able to service the entire debt at least and contribute to the stalled power industry.

Sonia: Do you think this entire formula is sustainable at this point because what happens tomorrow when imported gas prices rise then the government’s formula will completely be thrown out of whack?A: I think we have to see there are three-four players here, one is the GAIL at which price they are going to import whether it will be on a shipment basis or it will be on an average cost basis or from time-to-time it will be changed so that is one indeterminate.Second is they are also going to allow us to bid for the variable cost that is fuel plus they will allow operations & maintenance (O&M) plus also the interest service cost. So that also will be covered in that Rs 5.50 paisa.The third variable factor is at which price the individual distribution companies (DISCOMs) in the irrespective states will bid for the power. For example, somebody who has got not much need -- in the Western states -- their bids maybe lower but somebody in the south or in the eastern states they may bid for a higher price. In that event, I will be able to recover the money from this source as well.Latha: What is the growing power of merchant for now, surely you will get only a price lower than that or at least as best as that?A: Unfortunately the current prices are not real indication of the demand and supply portion in the country.For example, in the north, the merchant prices are Rs 2.20, Rs 2.50  but in the south they are Rs 5.50 paisa, in some cases it is even Rs 6. So what will determine eventually -- first of all there is a limitation in terms of dispatch from north to south. For example, this entire Andhra, Telangana state, there are transmission powers and those who are located in the vicinity, they will be able to come out of this transmission problem, and the gas based power plant, which are located in the area, will be able to supply with more efficient to these states. I think one has to watch and see how exactly the demand supply portion is going to span out.Sonia: So at this Rs 5.5/unit tariff will you be able to recover your fuel cost and your fixed cost?A: I think so. For example, hypothetically the landed cost is around USD 9-10. At USD 9 for that matter, it will be approximately around Rs 3.60 paisa or so and you have got around Rs 1.5-2 margin. If it is USD 10, it will be around more than Rs 4. So you have got that much of a margin which will enable you to cover the interest cost and also your O&M cost.I am not to sure whether it will help me to repay my rupee debt but now the Reserve Bank of India (RBI) has come to the rescue of this plants where you can reschedule the principle payment where you will be able to get some 2-3 years kind of a moratorium. So on one hand, you will be able to push the principle payment in the far and the current pricing policy should enable us to service the debt comfortably and keep the power plants running. In my opinion this should help groups like ours as well as most of the gas based power plants.Latha: So this 30 percent all of you are likely to bid for?A: 30 percent is the maximum you can do. You are not entitled to get more.Sonia: What is your plant load factor (PLF) currently?A: It is zero. We did run sometime at 35-45 bps PLF also but today our 1,200-1,400 megawatt is completely having zero production capacity. So this will go a long way for companies like ours.