Kochi terminal operating below capacity: Petronet LNG

Q: The market wants to know what is happening with the Kochi terminal. There has been some issues over the last quarter; by when do you think those issues will be resolved and by when will the Kochi terminal begin to function with full capacity?

A: I must first share that Kochi terminal has been successfully commissioned. We did it in the August end and it is operating perfectly well.

The only issue that we have is that the terminal is not adequately connected with pipelines to the different markets as was envisaged earlier. It is right now connected only to a very little segment of the market; just about 42-43 kilometers of pipeline connecting to Fertilisers and Chemicals Travancore (FACT), the Kochi refinery, and two more small consumers of a chemical industry and a glass industry.

Therefore the offtake is limited. Our major pipeline from Kochi to Mangalore and Kochi to Bangalore via Tamil Nadu is still not operating. There is lot of delay there. We have no timeline set for these two pipelines. We hope the recent high court judgment in Tamil Nadu would facilitate in moving ahead on this.

Hopefully in the next maybe around six-eight months, we feel that at least one pipeline, one segment of Kochi-Mangalore could come up. Right now, our terminal is operating just about under 10 percent; it is about 8 percent capacity utilisation while we can work 100 percent capacity would be around 18-20 million standard cubic meters per day. That is all I can share with you. We are all set but hopefully the pipeline would come quickly.

Q: What is the capacity utilisation for the plant as of now, for the Kochi terminal as of now and for how long do you expect this current capacity utilisation to possibly sustain because of the lack of connectivity that you are facing at this point?

A: Right now, we are supplying about 1 million standard cubic meters a day and that would amount to just about 8 percent capacity utilisation of the entire plant.

We understand that the two pipeline which GAIL is laying they have mobilised all the contractors, they have also bought all the equipment, the pipelines and all but on ground in several segments of this Kochi to Mangalore no improvement has taken place, no progress has been there.

So, we do not know what timelines – about that I will not be able to make an exact guess on that. However, whatever we have been given to understand it might take about eight to 10 months time hoping that the Chennai High Court decision would facilitate in moving ahead on both segments of the pipeline.

Q: There is a debate in the market right now on the demand concerns on LNG itself because there is one camp which believes that the spot rates are very high and that is impacting demand and the other camp says that even at those rates LNG is still competitive compared to the next available resource. What would be your comment in terms of the demand scenario?

A: There are some cyclic trends and right now we believe that because of the winter particularly in the Europe, US and Japan the spot prices and the availability also is a little constrained. They have moved up to the level of about USD 18-19 a million btu. We believe that in coming weeks itself we will perhaps see a downward trend and they should come to more reasonable levels by maybe February-March. So, this is a seasonal effect of the winter season and it should correct itself by February-March.

As far as the LNG demand is concerned we feel it is more or less stable. There is no appreciable change. We see from quarter to quarter there is similar utilisation. Our Dahej terminal is there and the levels are similar. So, we don’t see any dramatic change or any significant change otherwise.

Q: The Asian Development Bank also is going to provide you around a USD 150 million in terms of a loan. Can you just tell us what the exact utilisation would be and what would be the terms of the loan and what would it take your total current debt to?

A: As you are aware that we are expanding our Dahej terminal from existing 10 million tonne capacity to 15 million tonne capacity or maybe a little more; we will examine that. This expansion is being structured slightly differently. You are aware that we have already booked 2.5 million tonne to GAIL for 20 years of the coming extended capacity and about approximately 1.25 million tonne per year to Gujarat State Petroleum Corporation (GSPC) for same time of about 20 years time.

They would be giving us some advance to take care of our equity part. However, the project would need some more funds and the cost would be approximately about Rs 3,000 crore because the marine facilities are already under construction and we hope that the marine facility would be – the second jetty would be ready for the expanded capacity by maybe April or so.

However, for the re-gasification and for the tankage, we would have to raise funds. We are happy that ADB in line with its continued partnership with us has sanctioned USD 150 million. We will see at what point in time we take it. We have to see how much internal accrual would be there and we will take a final call maybe by March or so.

Q: What kind of numbers do you think you will deliver in this financial year since you would have fair estimate of volumes and the realisation. What kind of EPS numbers do you think Petronet LNG will end the year with?

A: That is a tough question. I won’t be able to give the numbers as such. We know that because of the Kochi terminal not coming and operating at a higher capacity it will definitely impact our current-year numbers because of the depreciation being there, the interest burden would be there and on top of that we are not able to utilise the terminal to the extent that we wanted to.

So, this is definitely going to impact our bottomline this financial year. However, this is a temporary phase. It will be very difficult to give a number on that but it could be significant.