'Imported gas auction to help power plants service interest obligation'

Allocation of the imported re-gasified liquefied natural gas (RLNG), under the new gas supply mechanism, would help stranded power projects to service their debt, said CRISIL in its report.

It is estimated that at prevailing gas prices, the upcoming e-auction of RLNG can enable power plants with 9,000-megawatt (Mw) capacity, of total 14,300 Mw, to operate at a plant load factor (PLF) of 25-30 per cent. This is good enough to service their interest obligations for about two years, said the report.

CRISIL said the success of the scheme will hinge on the ability of power plants to find buyers for their electricity. "According to the scheme, the net sale price of electricity to discoms has been fixed in the Rs 4.7-5.5 per unit band, well above current average prices in a market plagued by low demand. It is also higher than the average Rs 3.5 to Rs 4.5 per unit that discoms paid last financial year. The success will also depend on whether players can get a moratorium on principal payments from lenders for the next two years," said the report.

Under the scheme, project developers would be given per-unit rate subsidy from the Power System Development Fund (PSDF). This fund will be disbursed - based on a reverse auction mechanism - to stranded gas-based power plants first and then to plants already receiving domestic gas.

CRISIL expects that companies with superior station-heat rates (or needing relatively less fuel to generate one unit of electricity), low interest costs and ability to obtain favourable repayment terms from lenders are expected to be more competitive at the auction.

Further, the delivered price of the e-bid RLNG is estimated to be around $3 per mBtu (million British thermal unit) lower than spot RLNG prices, due to support from various stakeholders in the form of reduced marketing margins, re-gassification charges and transportation charges, apart from customs and sales tax waivers.

This translates to Rs 870 crore of support by these stakeholders, in addition to the subsidy support from PSDF, during the same period. Hence, apart from tie-ups for offtake, the success of the scheme will also depend on support from all stakeholders in the RLNG supply chain as well as state governments. To be sure, the e-auction will provide some respite, but CRISIL believes long-term viability and credit quality of these power plants will ultimately depend on increased availability of domestic gas.