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Gas-based Plants May Not Be Profitable In Long Run

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The gas-based power plants that the NDA government is trying to revive by providing subsidy may not turn profitable in the long term. An analysis of the balance sheet of these power firms done by  India Ratings suggests that is unlikely that the gas based power plants will come out of the woods on the back of government subsidy in the form of cheaper liquefied Natural gas.
 
“The gas plants benefitting from the government subsidy could not fully meet debt servicing and bank loans towards these assets would remain stressed in the short to medium term. The stranded Gas plants for the full year can generate an EBITDA of RS 1,420 crore  under this scheme as against their annual debt servicing requirement of Rs 7,000 crore, thus leading to a debt service coverage ratio of 0.2x,” the report read.
 
The subsidy scheme has been envisaged for 32 stranded gas power plants with an estimated investment of Rs 60,000 crore. These assets have an estimated project debt of Rs 42,000 crore, which would balloon further on account of unpaid interest.
 
“The costs incurred by the government in subsidy pay out are likely to be higher than the benefit derived from operating these plants. EBITDA earned by stranded power plants and domestic gas based power plants  from the imported spot regasified liquefied natural gas scheme might be lower than the subsidy pay out by the government and far lower than the aggregate contribution/additional cost incurred by other stakeholders,” says the India Ratings report.
 
The current bidding is valid from June to September 2015. Operations under this scheme are supported by benign spot gas prices and subsidy support from the government. The complete operationalisation and long-term operational success of the scheme would depend upon tying of other loose ends including contracting of gas supplies, discoms‟ appetite for this power, exchange rate movement and consent of all stakeholders including pipeline companies, re-gasification facilities and state governments.
 
The government has kept the rate of power at Rs 4.7 per unit and  Rs 3.39 per unit for Stranded and domestic gas based plants, respectively.
 
The scheme will in the first phase benefit 10 out of 32 SGPs and five out of 23 DGPs during June-September 2015.
 
The scheme is expected to generate 5.7 billion/kWh of electricity over June-September 2015 period  and this could further increase to 21billion /kWh during June 2015-March 2016.
 
According to India Ratings, the sustained ability and willingness of discoms to buy power at Rs 4.7 per unit  from SGPs and Rs 3.39 per unit from DGPs remains to be seen, given that currently power can be purchased from exchanges at Rs 3- 3.5 per unit. Additionally, the government could increase the tariffs payable by discoms if LNG prices were to harden, provided the subsidy per unit from PSDF is not increased.
 
India Rating says that this situation could result in unwillingness on the  part of discoms to sign power purchase agreements. 


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