GVK defers expansion of 2 gas-based plants

With the availability of gas becoming uncertain, infrastructure major GVK Power & Infrastructure Ltd has deferred the plans to expand its gas-based power projects.

The company is likely to take a relook at the expansion only after six to 12 months.

“Two key projects — Jegurupadu and Gautami — were to be expanded. Now, there is no clarity on the gas allotment and supplies. So, it is becoming risky for the company to plan any expansion based on gas,” a source tracking the developments in the company told DNA.

The company is believed to have finalised the expansion plans and has also placed orders for equipment. However, the much-awaited gas supplies are not on the horizon. For instance, the Gautami power project at Peddapuram in Andhra Pradesh was to be expanded to about 800 mw from the existing 464 mw with an outlay of about Rs3,200 crore.

GVK had also placed EPC orders with the Korea-based Hyundai and L&T-ECC. The project was to commence operations in 2013.
Similarly, the Jegurupadu power project, which currently has about 479 mw, too was taken up for expansion by adding another 800 mw.

“There is no way anything on gas can be aggressively taken up,” the source said.

Now, GVK is focusing more on thermal capacities with the 20 million tonne coal becoming available from its Australian asset Hancock. The company currently has about 540 mw thermal capacities at various stages of implementation and has a plan to ramp it up to about 1,320 mw.

“The company has enough coal available on hand. At least, the source of fuel is more certain than gas. So, it makes sense to focus on what is available than what is in somebody else’s hand,” the source said.

If all goes well, the company would look at acquiring thermal plants that are at an advanced stage of implementation to cut down on time taken to acquire various approvals.

While the analysts are not excited about the prospects of Hancock and translation of the acquisition into positive results on the balance sheet, they see a potential dilution of equity in the energy vertical, particularly in the backdrop of deferment of the gas-based capacity expansion.

“We believe that PE investors will also need a higher stake in the energy vertical given that some of the projects that were in the pipeline are delayed at the moment,” Deepal Delivala, Venkatesh Balasubramaniam, Atul Tiwari and Rishi V Iyer of Citigroup, said in their report on September 30, 2011.

“As per GVK’s first-quarter conference call, an option has been extended to the PE investors to increase their stake to 30% in the event that the expansion projects (Jegurupadu-3, Gautami-2) in the pipeline are suspended. We believe there is a high likelihood of this scenario panning out, given the ongoing delays in these projects and lack of clear visibility on gas ,” they said.