We will be able to maintain FY13 EBITDA margin: Rel Power

JP Chalasani, CEO, Reliance Power says the company's 1,200 MW Rosa plant in Uttar Pradesh operated at a high operational efficiency and the plant generated over 2 billion units of electricity in the first quarter.

Reliance Power, the power generation arm of the Anil Ambani-led Reliance Group, posted a 22% increase in net profit for the quarter ended 30 June to Rs 240 crore from a year ago. Chalasani says the plant is now fully operational commercially. "The first quarter plant load factor is at 78% for the Rosa Unit due to shortage of coal," he told CNBC-TV18 in an interview. Reliance Power will have 5,000 MW of power generation capacity ready by the end of fiscal 2013. "The company will operate at a narrow EBITDA margin for some quarters," Chalasani said adding, R-Power will be able to maintain FY13 EBITDA margin. He said the company is on track with guidance of capacity expansion. Here is the edited transcript of the interview on CNBC-TV18. Q: If you can tell us how much of your profitability has been contributed by Rosa this time around and there has been a dip in your plant load factors (PLFs), if you can just tell us what is more sustainable PLF that you see in the next couple of quarters? A: Rosa is now a 1,200 megawatt (MW) base. That is one phase. It is the first quarter where we had the 1,200 MW base operating and that is a significant change on this. At 1,200 MW level, we had the PLF of 78% and availability of 81%. If you look at the current context of various coal based projects in the country, I think this is one of the highest locked-on base. PLF could have been much higher than 78%, at least by 15% on this. Rosa Unit III was commissioned in December and Unit IV was commissioned in March. So the fuel supply agreements with Coal India took some time to sign because of initial issues on this. Therefore, the supply of domestic coal was short. Though, we had used imported coal there but, we still need domestic coal to blend and fire on this. That is the reason why we had 78% PLF. I think we will catch up in the next three quarters. We are sure that by end of the year, the PLF for Rosa would be between 85% and 90%. As far as the profitability is concerned, Rosa has contributed about Rs 136 crore and that is in line with what we were earning earlier. _PAGEBREAK_ Q: Nevertheless, both at an EBITDA level and the net level there was a bit of a disappointment in the profit, about 3% lower if we went by the analysts poll. You have done an excellent job of controlling your O&M cost, they were lower than expectations as well. How do you think margins as well as profitability will pan out in the remaining three quarters, coal will be a big issue, so give us an idea of how margins and profits will pan out? A: Whether you look at Rosa, at an individual plant level, we are operating at a very narrow EBITDA margin level. We have been consistently maintaining our EBITDA margins at the same level. I don't see any stress on those EBITDA margins and would continue to do the same and maybe keep improving couple of basis points on the EBITDA margins. As far as coal is concerned, this issue was limited only to Q1 because the new units which have come up in the last quarter of last year had to sign the new fuel supply agreements with Coal India. We are all aware that initially there was delay in Coal India signing up fuel supply agreements. Now, having signed a fuel supply agreement for unit III as well as unit IV, I don't see any issue with respect to that in the coming quarters. As you are aware, in Rosa we are also buying coal from the market, both imported and the domestic market and we have such permissions from the regulatory authority as well as the procurer from time-to-time. Rosa has never suffered for want of coal till now. This is a one-off event where there was a delay in signing the fuel supply agreements and that is it. If you see now, the three units are operating and overall, all three are running plateaued with 100-300% PLF. Therefore, I don't see any issue with respect to that and as you also know, by the year end the PLF you log and the availability you log is what you can recover from the previous ones. It is a cumulative availability and cumulative PLF and is not a quarter-by-quarter analysis. I don't see any issue with respect to Rosa and as I said, we will log on this. The other one which added to the bottomline is the solar PV 40 MW of continuous largest plant which has come into operation. It has now reached the PLF level that we had estimated to achieve and it has started contributing towards the bottomline. Butibori will start contributing to the bottomline and in fact, it has contributed to the extent of Rs 18 crore to the bottomline in this quarter itself. As we move forward, more and more projects would start generating revenues and we have been managing fuel quite efficiently till now. _PAGEBREAK_ Q: Can you give us you capacity guidance for FY13 – now that issues of domestic coal supply have been resolved, what kind of target would you have for FY13 and are you on track to achieve that? A: Yes. If you remember, we gave a guidance that we would be 5 gigawatts in FY13 and if you go project by project, we said that we will complete Rosa and we have completed it. Butibori we said that we will complete and one unit is going to be done in this quarter. For the other big project Sasan, we said that the first unit will come on stream and it is on track. We have done the hydro test, we are expecting to light the first unit shortly and that first unit of Sasan would come up. The other projects which were part of this 5 gigawatt is Samalkot where we have made 4 gas turbines ready for operation and all the 6 gas turbines would be ready. On the capacity additions, we are on track with respect to the guidance that we gave.
Q: Yes of course, the capacity will be ready at Samalkot but the fuel issue has gotten a little more scary or a little more difficult isn’t it with the D6 reserves getting cut when will it be operational – how much will it be operational at Samalkot? A: I do agree that the domestic gas availability has dwindled but, my view is that this is an issue maybe till FY15. We still believe that beyond FY15 the domestic gas availability would keep progressively improving. In this intermittent period, gas pooling with domestic gas and imported LNG will be done. Now, we are going for coal, as you are aware and we are also into the pooling. Each of the stations may not operate at 90% PLF but, gas based stations will operate at 55%-60% PLF. Especially, if you look at this particular station located in Andhra Pradesh, in the southern state and also in southern region, currently you will see shortages there. If you look at the recent trend of tariffs, the kind of competitive bidding the states are getting on this and the support tariffs for gas based as well as the coal based ones is coming out very high, with an average of Rs 5.
Q: The CAG report on the UMPP issue will be tabled today and Reliance Power had written to the CAG asking them to drop that bit of undue benefits arising out of surplus coal – have you got any kind of response from CAG and what is your comment on this? A: I would definitely comment on this once the report is tabled and when we see the report. _PAGEBREAK_ Q: They didn't reply to you when you wrote to them after the draft? A: I said that I would like to comment on this issue after the report is tabled. We would definitely comment on this. Q: But if the final report says what the draft said then what would your response be? A: At this stage when we speak it is hypothetical. It is a question of a few hours, let the report be tabled and I would definitely be available for comment. Q: Do you see any kind of project hindrance because you told us that at Sasan the production of coal is expected from August 2012, is that on track and is the commissioning of unit one also on track? A: Absolutely. Today if you visit Sasan coal mine, you will see coal there. So the coal will be transported to the power plants, wherever it is needed. You can actually see the coal at the mine now.