GMRs hopes now ride on APs higher power cost scheme

Written by Ajay Sukumaran | Anand J | Bangalore | Updated: Feb 16 2013, 07:58am hrs
GMR Infrastructures energy business continues to bleed because of a gas shortage in the country, widening its December quarter losses, but the company is hopeful of getting its gas-based power plants back to peak operations with the Andhra Pradesh governments new scheme for higher power cost. Losses from GMRs energy business widened to R158 crore for the quarter from R84 crore as its two gas-based power plants ran on 20% capacity utilisation. GMR on Saturday had reported a net consolidated loss of R217.45 crore for the quarter despite its airports sector returning a higher Ebitda margin.

If the expensive power supply scheme in Andhra Pradesh takes off well, then all our projects will start firing on all cylinders, said A Subba Rao, Group CFO, GMR Infrastructure. He also said the gas pooling mechanism is expected to kick in by mid 2013.The company expects performance of its energy business to improve when it commissions two coal-based plants this fiscal.

The Andhra Pradesh electricity regulator recently approved an Expensive Power Supply Scheme, which would enable power plants, currently lying idle because of the gas supply shortage from KG basin, to buy the more expensive imported natural gas and sell power to consumers willing to buy at a higher rate. Power producers were not able to use imported gas earlier as there were no buyers for the costlier power, but they are hopeful of finding customers owing to the power supply shortage in the state.

Gas-based power plants in the state with a cumulative capacity of roughly 3,600 MW have been running at very low peak load factor, Subba Rao said. GMR currently has two operational gas-based power plants in Kakinada and Vemagiri in Andhra Pradesh, while it has had to stall work on a plant under construction at Rajahmundry as it could not secure gas supply.

GMR, which currently has a net debt of R37,000 crore at the group level, saw its finance costs rise by 24% year-on-year to R525 crore in the October- December quarter. The company has previously said it is looking at divesting stake in some of its energy and road projects to ease debt repayment costs.

We are following the asset-light asset-right approach under which we would divest stake in some assets. Once the project goes off our books, the corresponding debt also will come down, he said, adding that the divestment would be mostly in the energy and highway projects which have been completed and operational. An infra developer makes most value during the development phase and makes relatively lower value in the operational phase because most of the risks would have been mitigated, said Subba Rao.

He said the margin during the operational phase is generally between 10-12%, which would not suit developers with higher capital expenditure. GMRs asset-light, asset-right approach has a twin focus on low equity, high-margin businesses and also selling-off certain assets to create a better portfolio.