See plant load factor around 40-45% in Q2: GVK Power

GVK Power and Infrastructure has reported higher than expected consolidated net loss of Rs 64.3 crore in the quarter ended June 2012 as against profit of Rs 58.9 crore in a year ago period due to higher interest cost and tax expenses.

In an interview to CNBC-TV18, Isaac George, chief executive officer, transportation and director finance, GVK Power & Infrastructure says, the power projects did not perform well not because there was any issue with the plant, but because of short supply of gas. GVK Jegurupadu 1, the first project, he says, operated around 73% plant load factor (PLF). "“Jegurupadu 2, which receives gas from Reliance, operated at around 68% PLF and Gautami operated just at 45% PLF. So, I think the profits of the company got pulled down basically because these projects did not operate at capacity," he elaborates. The company, he says, will continue to operate at lower levels of PLF. "I think it will be around 40-45% and not beyond that during the Q2 also, unless and until the government takes a decision to supply LNG or RLNG to take care of the deficit in the state." According to him, unless the government takes a call that it will supply the company with alternative fuel, the power sector will reel under short supply of gas. “Power could be an overhang,” he adds. Below is the edited transcript of his interview with Udayan Mukherjee. Q: What is the update on power business? You seem to be operating at a fairly sub-optimal level because of inadequate availability of gas still. A: Basically, the power projects did not perform well not because there was any issue with the plant, but because of short supply of gas. GVK Jegurupadu 1, the first project operated around 73% plant load factor (PLF). That is because we received gas from Gas Authority of India.  The other two projects, which receive gas from Reliance Industries, operated below optimal level. Jegurupadu 2, which receives gas from Reliance, operated at around 68% PLF and Gautami operated just at 45% PLF. So, I think the profits of the company got pulled down basically because these projects did not operate at capacity, though availability of all these projects has been above 95%. We were not in a position to operate because of the short supply of gas. Q: Is there any improvement that you are expecting in the current quarter, in the July-August-September quarter or will the situation with gas availability remain this poor? A: Honestly no. But there was a surprise element that some of the gas that we were getting was contemplated to be diverted to Dabhol power. The Chief Minister of Andhra Pradesh had a meeting with the Prime Minister and now, thankfully the power is not going to be diverted. We will continue to operate at lower levels of PLF. I think it will be around 40-45% and not beyond that during the Q2 also, unless and until the government takes a decision to supply LNG or RLNG to take care of the deficit in the state. _PAGEBREAK_ Q: Are you working on any kind of alternate fuel sources for these plants? Can one expect any kind of development on that front or is it difficult? A: All the three plants are capable of firing liquid fuel; it is either naphtha or high speed diesel. We are also in interaction with the state government to allow us to burn either RLNG or LNG. Now that is a decision that the government has got to take. It is a call that the government will have to take whether they want to buy this expensive power or not. But otherwise we are capable of burning alternate fuel, which is liquid fuel technically. Q: Because of these subdued cash flows, you are no able to service the high debt that you are sitting on and your interest costs have now gone up to Rs 180 crore for the quarter. That is really pinching into your margins. Do you see your way around it soon? A: As far as debt is concerned, let us understand that the total debt in the company is about Rs 14,000 crore. Roughly about Rs 11,000 crores of debt is sitting in special purpose vehicle (SPV). So, there is no problem with respect to servicing those debts, which are actually given to the SPVs. There is a debt of about Rs 3,000 crore sitting at a holding company level, which is basically airport. We had utilised this debt for the acquisition of additional stake in Bangalore and Mumbai International Airport. We want to liquidate that at the earliest. We are talking to a few players who have shown interest in this. We are confident that by the end of this year we would be in a position to raise money to pay off the debt. Once that is paid off then all the debts that we have would be sitting at the SPV level. There is absolutely no problem in servicing those. Q: Is there any progress which has happened with the land monetisation at the Mumbai Airport or does it still remain a fairly distant possibility? A: No, it is not a distant possibility. It will happen soon. We are in the last stages of getting the final approvals. That has got unduly delayed. But we are confident that it should happen very soon. After that, monetisation will happen. Q: So, for the rest of the year, do you think the problems of the power segment will overshadow any kind of gains that you are making from the roads and the airport segment? A: Unless the government takes a call that it will supply us with alternative fuel, I think the power sector will reel under short supply of gas. That is something which will actually weigh heavily on our profits. But otherwise roads have been doing exceedingly well, airport is doing exceedingly well. So, we don’t have a problem with the other two sectors, but power could be an overhang.