India’s indebted private utility Essar Power is stepping up efforts to get its plants back into operation and profitable. “We have no plans now to monetize any assets for now," a spokesman said, trying to tone down comments of the company’s CFO that the sell-off of two gas power assets in Gujarat in the making.
Divesting some power units would help Essar Power to reduce its debt burden which has amounted to over Rs 20,370 crore.
Alok Nagpal, Essar Power CFO had told reporters that the utility would evaluate all options to better monetise its assets. “We are looking at selling two of our captive gas-based plants in Gujarat,” he said, spurring speculation that the sell-off of two idled gas power plants might be imminent.
Plants idled over gas shortages
Fuel shortages in Gujarat, India's westernmost state, made it impossible for Essar Power to keep operating its 500 MW Bandar gas power plant, commissioned in 2006, as well as and its 515 MW Hazira unit.
The Hazira plant was commissioned in 2006 but could not start full operations until October 2008 as Essar found it uneconomic to operate the asset in the face of high fuel prices for national gas; hence it shut down the plant some three years ago.
This leaves the utility liable its industrial customers – having signed power purchases agreements with Essar Steel ad Gujarat Urja for the output from the Hazira-I gas power unit. It is unclear what payouts Essar had to make to dissolve these PPA.
Evaluating assets to prepare sell-off
Putting a positive face on it, the Essar CFO said both these power plants were “ready” and could start operating, provided sufficient fuel supply – which used to prove rather tricky.
”We looking at selling off these plants now.
"We are still evaluating its valuation and it may take some time,” Nagpal said, suggesting the prospective buyer would “mainly be a captive user,” hence he could start up the plant immediately once the fuel is available.
Frequent blackouts
Lack of continues gas supplies, notably to declining domestic output from the KG-D6 field production, led to a widespread underutilisation of gas power plants and caused recurring power shortages.
Figures published by India’s Central Electricity Authority (CEA) show that utilisation rates in Indian power plants using fossil fuels have fallen steadily since 2007 (from a peak of nearly 79%) to below 70% in 2015 largely due to disruptions in steady domestic fuel supplies and transmission and distribution constraints.
Natural gas-fired generation capacity has fallen to nearly 23 GW in early 2015, or 9% of total generation capacity, and the government’s expansion plans for gas-fired capacity through 2017 are much lower compared to other fuel sources.
Turning to coal generation
Coal accounted for nearly 148 GW (or 59%) of the utility-based installed capacity, with over a third of the 65 GW of planned new coal-fired capacity already being added to the grid.
India can draw on significant domestic coal resources; hence the country’s 12th Five Year Plan (2012-17) foresees adding add 120 GW of power capacity to the grid.
Most installed fossil plants are clustered in the highly populated western region of India, particularly in Maharashtra and Gujarat. Decentralised, captive power plants for on-site industrial consumption account for just 40 GW, according to CEA figures.