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CEA directs no gas-based addition, pooling faces resistance. Central Electricity
Authority (CEA) has issued a directive to put on hold all gas-based capacities citing poor
domestic supplies. Further media reports indicate that Ministry of Power is not
encouraging pooling of gas prices—suggesting that extant gas-based capacities will
continue to operate at lower utilizations such as those of NTPC (4,017 MW) and Lanco
(734 MW), while near-completed capacities such as those of Reliance Power (2,262
MW) and Lanco (742 MW) will likely remain mothballed for some time to come.
No incremental gas-based capacities till FY2016E—directive of CEA
The Central Electricity Authority (CEA) has advised power producers to put on hold all domestic
gas-based capacities till FY2016E on account of non-availability of any incremental domestic gas.
As per the Ministry of Petroleum and Natural Gas (MoPNG), NELP gas production (essentially KGD6) is likely to go down by 15 mcm/d in FY2013E and an additional 3.42 mcm/d in FY2014E
against a current availability of 42.7 mcm/d (for FY2012E). We have been highlighting the
constrained gas-supply scenario in the country and had accordingly not accorded any benefit of
the near-complete gas-based capacities in our coverage universe (Samalkot by Reliance Power and
Kondapalli by Lanco Infratech). The recent advisory by CEA implies that both these capacities are
likely to idle in the near term.
Gas supply to remain constrained, even extant capacities might face the crunch
As per the estimates from our Oil & Gas team, total gas supplies will increase by a modest 8%
CAGR (2% CAGR for domestic supplies) in the FY2012-17E period despite assuming a significant
increase in gas supply from imported LNG (see Exhibit 1). We note that imported LNG is not a
viable proposition for the power sector due to lack of cost-competitiveness. Our Oil & Gas team
further notes that the power and industrial segments are unlikely to receive any additional gas
before FY2015E (now corroborated by the CEA advisory). Further, the constrained supply scenario
could result in lower supply to extant power plants that may affect power generation from
affected plants – already evident in declining PLFs of gas-based capacities (see Exhibit 4).
LNG unlikely to be a viable option, price pooling faces resistance
In our view, LNG is unlikely to be a viable option given the prohibitively high cost of generation.
Exhibit 5 compares the cost of generation across various fuel grades. Further, many of the power
plants proposed to come up in Andhra Pradesh are located away from extant and new LNG import
terminals (see Exhibit 6). We note that recent media reports indicate that MoPNG’s proposal for a
pooling of gas prices has been rejected by Ministry of Power (MoP) citing that the current levels of
domestic production and RLNG terminal capacity make pooling an unviable option.
Impact more pronounced for Reliance Power and Lanco, NTPC less impacted
We note that among our coverage universe, Reliance Power (2,262 MW at Samalkot) and Lanco
Infratech (742 MW at Kondapalli) have gas-based capacities that are nearing completion and the
current embargo would result in idling of these capacities in the near term. We however note that
there will be no impact on our earnings and valuation estimates since we do not ascribe any value
to these gas-based capacities, though note that the debt taken for these projects might need
restructuring. Further, declining gas supplies could impact the PLFs of extant plants, in which case,
Lanco’s merchant capacity at Kondapalli (366 MW) would be the worst-hit. NTPC’s earnings could
be constrained by lower availability for extant gas-based capacities.
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