Debt, gas problems knock stuffing out of GVK

Gas shortage has knocked the stuffing out of GVK Power and Infra as the company ended FY13 with a loss of Rs 335 crore, four times higher than the previous year.

Two projects Jegurupadu (phase 2) and Gautami, that have capacity to produce 680 megawatt (mw), are completely shut since February. No solution to the fuel shortage problem is in sight.

GVK’s problems are compounded by debt taken in more bullish times to increase its stake in Mumbai and Bangalore airports. Interest burden for the loan of Rs 3,500 crore taken in 2011, accounted for Rs 480 crore in the period. The company has come a full circle since, and is talking to private equity and strategic investors to sell parts of both projects.

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The opening of the first phase of Mumbai airport redevelopment (the international terminal) at the end of 2013 is expected to improve revenues from retail and other non-aeronautical sources[/caption]

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It has 50.3% stake in Mumbai airport (MIAL) and 43% in the Bangalore airport company (BIAL). Speaking to Firstpost, GVK director finance Issac George said, “Both projects are monopoly assets headed for capacity expansion and have been performing well. GVK could even divest beyond 25% in the projects, depending on the valuation.''

GVK’s total consolidated debt is a huge Rs 16,000 crore, though lower than its peer in the business GMR Infra which had a burden of Rs 37,600 crore at the end of December ‘12. “Most of the debt is at the SPV level and backed by assets,’’ Issac said.

The opening of the first phase of Mumbai airport redevelopment (the international terminal) at the end of 2013 is expected to improve revenues from retail and other non-aeronautical sources. Bangalore airport expansion is expected to be complete by October.

Speaking on the options to restart the power plants, Issac said there are a few alternatives, but all of them mean an increase in the cost of power produced. The first choice is moving to High speed diesel(HSD) instead of gas. But switching over to (expensive) HSD as feedstock could more than double the price of power to about Rs 8 a unit.

GVK has applied to the Andhra Pradesh government for permission to do this- its already being done intermittently at Jegurupadu phase one. The second is to buy LNG (Liquified Natural Gas) from the west coast. This is an even more expensive option as the cost of LNG combined with inter-state taxes and transportation takes the cost of power up to Rs 13 or Rs 14 a unit. GVK is hoping the AP government agrees to buy this power, and then sell it to power-starved industrial consumers. “We are unable to sell this power directly and take the risk on our books, " Issac said.

Analysts tracking the power business say gas-based power producers are also lobbying the power ministry to remove the priority structure on gas supply.

Currently all available domestic gas is prioritized: fertilizer and city gas companies get priority over power. If this hierarchy is removed, everyone gets a share of India’s meager domestic production.

Meanwhile, Issac is hopeful of a better FY14 based on six new projects coming onstream. These are the two airport expansions at Mumbai and Bangalore, the Alaknanda hydel power project, a thermal project at Goindwal Sahib in Punjab, a 332 km BOT road project at Deoli Kota in Rajasthan and the Tokisud coal mine.

The GVK Infra stock closed at Rs 9.2 on NSE on Thursday, falling marginally by 1.2% from when the results were announced on Wednesday.