GVK Power and Infrastructure (GVKPIL) has a project pipeline worth over R25,000 crore spread across airports, road and power sector. All these projects are expected to start generating revenues by 2015. However, Issac George, CEO (transportation) and director (finance), is still cautious. The business is seeing some difficulty but is definitely not under stress, he tells FE?s BV Mahalakshmi. The concern about debt at the current levels still persists, which is expected to be cleared by December this year, he says in a candid interview. Edited excerpts:
The company has obtained the much needed environmental clearances from the Australian government for the $10-billion Alpha Coal project. The management must be quite relieved.
We see the success of this project as a platform for global resources and a stepping stone for many more projects. For land, we have tied up 75% for the rail corridor through MoUs and agreements. The rest will be tied up in the next one or two months. We are in the process of identifying engineering, procurement and construction contractors. If all goes well, we expect the financial closure to happen in the middle of the next year. We will be tying up for debt and are in talks to raise private equity (PE). Of the $10 billion, approximately 70% will be raised through debt, while the remaining will be pumped in as equity.
The phase one of the project will involve capital expenditure of about $1.2-1.3 billion to develop and extract 30 million tonnes of coal and about $2.8-3 billion for laying the rail lines. Several utilities have expressed interest to invest in the project. Typically, utilities would like to invest in the form of equity in projects such as these and we do not see any difficulty in raising funds. We are anticipating that more than 70% of our debt will come from Exim banks. We are also negotiating with companies to sign long-term coal supply agreements from countries such as China, Korea and Japan. We are hoping to ramp this up to 32 billion tonnes by 2018.
What is your overall debt position and when do you think you will be able to drive it down?
The overall debt is about R13,500 crore. If there is infusion of PE, we hope to see good, positive times by March and we will get back into black without difficulty. We reported higher-than-expected consolidated net loss of R64.3 crore in the quarter ended June against profit of R58.9 crore in the year-ago period due to higher interest cost and tax expenses. We see some difficulty, but are definitely not under stress. We are growing, but the debt at the holding level is a concern, which is expected to be cleared by December. This will also pass.
How do you see the health of the company?s airport business?
Two promising investors would be infusing PE. I cannot commit whether they would be financial or strategic investors, but can assure the deal will happen by December. We have R1,305-crore debt at the SPV level (MIAL is a consortium), but we have the ability to pay off. We will be safe if we can convert debt into equity and the proposed investment by the two investors come in by December. The total debt of the airport holdings is about R2,000 crore.
We are requesting the Airports Economic Regulatory Authority to be allowed to charge additional airport development fee and aero-charges to complete the airport modernisation. We took up modernisation and expansion of the Mumbai airport with an initial outlay of R9,800 crore, but the cost escalated to R12,380 crore. We are still evaluating bids for Goa and Kannur airports. Since Kannur airport is a greenfield project, we have to assess the feasibility as it would be a new airport, but for Goa it is easier. As of now, we have to complete the projects in hand and reduce debt. In the international scenario, we are developing two greenfield international airports in North Bali and Yogyakarta, Indonesia. While Bali airport is progressing slowly, the master plan for Yogyakarta is under way.
With existing operational power plants generating 900 MW and another set proposing to generate 5,000 MW placed under various stages of construction and development, how do you see the short to medium-term prospects for the company in the power sector?
We have projects worth over R25,000 crore that are spread over airports, road and power sectors. All these are expected to start generating revenues by 2015. After their completion, we expect revenues of about 9% from the road sector, and higher growth from the airport business. In the transportation vertical, there are no cost overruns. We see a lot of opportunities for public-private partnership projects in the country.
Are you concerned with the low plant load factor?
While GVK Jegurupadu-1 operated around 73% plant load factor (PLF), Jegurupadu-2, which receives gas from Reliance, operated at around 68% PLF and Gautami operated just at 45% PLF. Overall, there would be lower levels of PLF at about 40-45%. Going forward, unless there is a decision from the government to supply LNG or RLNG, the power sector will continue to reel under pressure. Availability of domestic natural gas has come down with short supplies from KG-D6. Availability of coal and natural gas continue to be a key challenge in the sector.