Trading update for Q3 FY18

13 March 2018

 

 

OPG Power Ventures plc

("OPG", the "Group" or the "Company")

 

Trading update for Q3, FY18

Record Generation Volumes and Solar Commissioning

 

Highlights

 

·   1.3 billion units in Q3 FY18, up 23% on prior year - highest ever quarterly generation

·   Nine months FY18 production 3.7 billion units, up 9% on the corresponding period

·   Q3 FY18 Plant Load Factor ("PLF") at Chennai was 80% and at Gujarat was 84% - highest ever combined average

·   22 MW solar commissioned; 40 MW in pre-commissioning

·   Strong cash collections from TANGEDCO - 86% of old receivables cleared, and

·   Gujarat - No Cross Subsidy withheld from our tariff by the DISCOMs in February 2018 for the first time

 

 

Arvind Gupta, Executive Chairman, commented:

 

"We continue to pursue our strategy of asset maximisation and delivering responsible growth. In the last quarter we have established a new record for our operational performance, with load factors well above  industry averages and we have augmented our renewable projects which are steadily being commissioned as planned. I am pleased that following the reconfirmation of our group captive status in December 2017, the DISCOMs in Gujarat have finally made no cross-subsidy deductions from our tariffs in February 2018. We have persevered and managed our balance sheet with care given the continued delays by the Gujarat state in acting on its confirmation of our group captive status and releasing the amounts due to us. We believe our continued focus on operations and responsible growth to be the best strategy for the Company and from FY19 and beyond we expect to benefit from better spreads."  

 

 

For further information, please visit www.opgpower.com or contact:

OPG Power Ventures PLC	+91 (0) 44 429 11211
Arvind Gupta / Dmitri Tsvetkov
Cenkos Securities (Nominated Adviser & Broker)	+44 (0) 20 7397 8900
Stephen Keys / Camilla Hume
Tavistock (Financial PR)	+44 (0) 20 7920 3150
Simon Hudson / Barney Hayward / James Collins

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ('MAR')

 

 

 

Group Operations Summary

 

	Q3	Q3	Nine Months	Nine Months	FY17
	FY18	FY17	FY18	FY17
Generation (million kWh)
414 MW Chennai	670	537	1,817	1,757	2,346
300 MW Gujarat	560	428	1,626	1,359	1,657
Generation (MU) excluding auxiliary	1,230	965	3,443	3,116	4,003
Additional "deemed" offtake at Chennai	59	78	236	269	364
Total Generation (MUe)1	1,289	1,043	3,679	3,385	4,367
Reported Average PLF (%)2
414 MW Chennai	80%	67%	76%	74%	76%
300 MW Gujarat	84%	64%	82%	68%	63%

 

Note:

1. MU - million units or kWh; Mue - millions units or kWh of equivalent power

2. Reported Average PLF based on Mue

 

 

 

Chennai - 19% more units generated in Q3, FY18

 

Chennai 414 MW	Nine months FY18
Generation (Million kWh)	1,817
Additional "deemed" offtake1 (Million kWh)	236
Total Generation (including deemed) (MUe)	2,053
Average Tariff (Rs/kWh)	4.96
Clean Dark Spreads (Rs/kWh)	1.42
Gross Debt (Rs billion)	9.7

 

¹ Deemed offtake is billed at fixed capacity charge of Rs1.5/kWh

 

Strong generation in the third quarter, with a load factor of 80%, meant that the Chennai plants' generation during nine months FY18 was 1% higher than the equivalent period in FY17. We expect full year PLF to be approximately 75%, including "deemed" offtake at Chennai and expect the average tariff for full FY18 to be around Rs5.00 per kWh.  

 

The "Clean Dark Spread", was Rs1.42 per kWh for Chennai in the nine months of FY18 (FY17: Rs2.63) or £16.93 (FY17: £30.03) on a GBP per MWh basis.

 

 

The Company is pleased to report that approximately £24.8 million has been collected from TANGEDCO in the nine months FY18, including collection of 86% of TANGEDCO receivables outstanding as at 31 March 2016. 

 

All scheduled interest and principal repayments at Chennai, amounting in aggregate to Rs2.3 billion (£27 million) were made during the nine months ended 31 December 2017.

 

 

 

Gujarat - 31% more units generated in Q3, FY18

 

Gujarat 300 MW	Nine months FY18
Total Generation (Million kWh)	1,626
Average Tariff (Rs/kWh)	3.99
Clean Dark Spreads (Rs/kWh)	0.95
Gross Debt (Rs billion)	17.3

 

 

Q3 FY18 plant load factor at Gujarat was 84%. Generation at the Gujarat plant in the nine months of FY18 was 20% higher, at 1.63 billion units, compared to 1.36 billion units in the nine months of FY17. The plant has performed consistently well throughout the year to date in just its second full year of operation and it achieved 238 days of continued operations without any outages. For FY18, the Company expects the PLF to be approximately 78% and to achieve an average tariff of around Rs4.00 per kWh.

 

The "Clean Dark Spread" was Rs0.95 per kWh for Gujarat in the nine months of FY18 (FY17: Rs1.37) or £11.27 (FY17: £15.70) on a GBP per MWh basis.

 

Interest and principal repayments totalling Rs1.3 billion (£16 million) have been made during the nine months ended 31 December 2017 at Gujarat.

 

 

 

Gujarat Cross Subsidy ("CSS") - withholding by DISCOMs ceased in February 2018

 

Gujarat state DISCOMs continue to hold approximately £40 million in cross-subsidies which are due to the Company. As previously reported, in December 2017 OPGS Power Gujarat ("OPG Gujarat") received confirmation from the relevant Gujarat authorities as to the plant's Group Captive status for FY18 and in February 2018 the Gujarat DISCOMs stopped withholding CSS from OPG Gujarat's invoices to its customers. We continue to pursue the Gujarat DISCOMs through firm and constructive dialogue for the speedy recovery of FY18 CSS amounts due (approximately £13.3 million as at 31 December 2017) and confirmation of Group Captive status for FY16 and FY17.

 

In the interim results, the Company reported that it had withheld a payment of £3.9 million of quarterly interest in respect of the period ended 30 September 2017. In December 2017, OPG Gujarat entered into discussions with its lenders regarding a Corrective Action Plan set out by the Reserve Bank of India ("RBI", Central Bank). A further one year loan of approximately £4 million was obtained and the outstanding interest of £3.9 million was paid before the end of December 2017, which allowed discussions to continue with the lenders regarding loan restructuring options.

 

Whilst the Company had commenced discussions with the banks, the RBI has recently issued a circular ("Circular") setting out a revised framework for resolution of situations such as those at OPG Gujarat. Discussions between OPG Gujarat and its lenders continue and all parties are evaluating the impact of the Circular on the process but, under the provisions of this Circular we expect a Resolution Plan ("RP") to be established by the lenders to OPG Gujarat before 31  August 2018. The Company anticipates that the outcome of the RP process should enable OPG Gujarat to better match the cash flows from the Gujarat plant with its debt obligations and to facilitate its self-sufficiency but, the Company does not expect OPG Gujarat to pay any further principal or interest to its lenders until such time as the RP is in place or another solution is implemented. The Company believes that, if and when the DISCOMs remit the sums due to OPG Gujarat, the Company would be in a position to repay deferred interest and principal amounts.

 

 

 

OPG Gujarat pre-commissioning transmission agreement charge

 

As disclosed in the Company's 2017 annual report, OPG Gujarat had entered into a Bulk Power Transmission Agreement ("BPTA") with Gujarat Energy Transmission Corporation Limited ("GETCO") for availing the transmission network for power generated from its plants. Pursuant to the BPTA, GETCO had raised demand for transmission charges of approximately £11 million (Rs0.9 bn) for the period from April 2013 to December 2015 of which half had been paid. Following legal advice, OPG Gujarat had challenged this in the Honourable Supreme Court of India but has learnt that its appeal has been dismissed, meaning that an outstanding amount of approximately £5.5 million plus accrued interest of approximately £1.8 million is payable to GETCO. OPG Gujarat is applying for this outstanding amount to be repaid in instalments.     

 

 

 

Coal Costs and Freight Hedging - Developments in progress

 

The average landed cost of coal was Rs4,328 per tonne in the nine months ended 31 Dec 17 (FY17: Rs3,552 per tonne). Based on the current market price and as set out in the Company's interim results, we continue to expect the full year FY18 average landed cost of coal to be in a range of Rs4,300 to Rs4,500 per ton, albeit near the top end of that range. The Company is in dialogue with its customers regarding revision in tariffs for FY19 on account of increased coal costs.

 

The Company has booked forward around half of its freight requirement for the calendar 2018 year at fixed prices. In addition, the Company continued to make its scheduled contributions of equity to jointly acquire two vessels in FY19 in order to better hedge against increases in freight costs for around half of its imports.

 

 

 

Solar: 22 MW Commissioned; 40 MW in pre-commissioning

 

Two solar sites for 22MW have been commissioned. Civil work for another 20 MW solar site was completed. For the remaining 20 MW solar site civil work is in progress.  Government inspections are being done at sites and synchronization for connectivity to the DISCOMS is on-going and on track for commissioning in the next few weeks.

 

 

 

Macro Outlook - Improvements continue

 

The IMF has projected India's GDP growth rate at 7.4% in 2018 and 7.8% in 2019, which makes the country the world's fastest-growing economy. This reflects the recovery following the impact of reforms such as GST and demonetisation and growth is expected to be driven largely by increased domestic consumption.

 

The Union Budget for FY19 is expected to be positive for the power sector with a focus on moving towards expanding electricity access and intensity through the Government's flagship schemes leading to increased demand. This year's budget has also increased the capital expenditure by Indian Railways, particularly for electrification - a move that is likely to create additional power demand for the sector. Niti Aayog (the Government of India's policy "Think tank") has projected a 8.1% CAGR growth in electricity consumption until 2022 from approx. 6% in the current year.  A further long-term boost to participants in the thermal power sector is anticipated in the form of private companies being permitted to engage in commercial coal mining and this provides an opportunity for power companies to purchase coal from other commercial miners other than state owned Coal India Ltd. The commercial coal mining auctions are expected to be held in next quarter.   

 

A reduction in tax rate to 25% from 30% for entities with turnover of Rs2.5 bn is positive for renewable IPPs. This is expected to be positive for OPG as the four solar projects in Karnataka will qualify for the reduced tax rates.

 

More widely the reforms and changes taking place in India have resulted in a Moody's Sovereign Rating upgrade to Baa2 the first in 13 years. India's ranking in World Bank's ease of doing business also moved up 30 notches to the top 100 countries.

 

 

 

Outlook

 

Notwithstanding the effect of high level of coal price referred to earlier, the Company expects generation to remain strong and cash flows from operating activities to remain resilient. As previously identified, while FY18 is expected to be a transitional year for the Company, as a result of the Company's operational performance, anticipated revision in tariffs and addition of 62 MW of new solar capacity in Karnataka plus progress at Gujarat, the Board remains positive about the Company's prospects for FY19.