LNG booster for power, gas companies

CCEA approval to help revive stalled gas based projects

The Cabinet Committee of Economic Affairs (CCEA) led by the Prime Minister Narendra Modi has approved a plan to use regassified LNG to restart stalled gas-based power projects in India. The plan was necessary as gas supply from Reliance’s Krishna – Godavari basin dried up and a large number of gas based plants shut down thus hitting electricity production hard. We take a look at the winners and losers of the proposal: 

The Winners: 

GVK Power, GMR Infrastructure, Reliance Power, Lanco:  These companies will be able to re-start ther plants in Andhra with the availability of low cost gas and will be able to repay its loans to the banks. Of the 24,150 MW gas grid connected power generation capacity in the country, 14,305 MW of capacity currently has no supply of domestic gas and are stranded. This represents an investment of over Rs 60,000 crore which is at risk of becoming Non Performing Assets (NPAs).

GSPL: The potential RLNG requirement of 17 mcm/day after assuming 50% PLF (plant load factor) for Gujarat-based power plants is significant versus GSPL’s current transmission volumes of 23-24 mcm/day.

Petronet LNG:  The plan will improve visibility on LNG demand for ongoing expansion and can act as a blessing in disguise for existing high-priced contracted LNG imports from RasGas.

GAIL: The company will benefit from its presence across the entire gas value chain (long-term LNG contracts, stake in re-gasification terminals and ownership of pipelines)

IDFC: The institution has substantially provided for its exposure  at almost 12% of net worth to gas-based power plants. If the companies turn around, it will help the company to recover its loans. 

The Losers: 

Government of India: Government may be required to compensate almost Rs 10,000 crore to Rs 24,000 crore of subsidies to discoms to enhance power supply for end-consumers at affordable prices. Both central and state governments will also exempt applicable taxes and levies on incremental RLNG imports. 

Reliance Industries:  The oil and gas producer will lose potential customers as it fails to generate gas from its KG basin. The company wanted to use gas from its KG basin to fire its own power station in Gujarat and save Rs 10,000 crore but this plan has now gone for a toss.