RLNG Imports can light up 9000MW of stranded power plants-CRISIL

Auction for allocation of imported gas can help plants service interest obligations, says CRISIL

The e-auction for allocation of imported re-gasified liquefied natural gas (RLNG) under the Ministry of Power's scheme for gas-based power plants is set to begin from 12 May. CRISIL estimates that at prevailing gas prices, this can potentially enable 9,000 mw out of 14,300 mw of currently stranded gas-based power plants to operate at a plant load factor (PLF) of 25-30% -- good enough to service their interest obligations for about two years.

The scheme makes available imported RLNG at a reduced price, and there will also be a tariff subsidy that will be determined through reverse auction. However, it requires companies to forgo their return on equity.

The success of the scheme will hinge on the ability of power plants that are allocated the imported RLNG to find buyers for their electricity. That's because, as per the scheme, the net sale price of electricity to discoms has been fixed in the Rs.4.7 to Rs.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 fiscal. The success will also depend on whether players can get a moratorium on principal payments from lenders for the next two years.

Consequently, 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.

The scheme also targets 9,845 mw of plants that already receive domestic gas but operated at sub-optimal levels last fiscal. However, these plants are unlikely to show significant interest at the auction because the amount of gas allocated to them is limited, and they already enjoy a favourable availability-based tariff structure that facilitates cost recovery.

The scheme provides for a per-unit tariff subsidy from the Power System Development Fund (PSDF). This will be disbursed -- based on a reverse auction mechanism -- to stranded gas-based power plants first and then to plants already receiving domestic gas. Between June and September 2015, PSDF support equivalent to Rs.844 crores has been allotted for this mechanism.

Further, the delivered price of the e-bid RLNG is estimated to be around $3 per mmbtu 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 crores 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.

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