Financing & Economics of City Gas Distribution - Feedback Ventures
Financing & Economics of City Gas Distribution - Feedback Ventures
Financing & Economics of City Gas Distribution - Feedback Ventures
Feedbacks Shareholders
Shareholder
L&T IDFC HDFC Mission Holdings
Director
Shailendra N. Roy N. Sivaraman A.K.T. Chari Manavendra K. Sinha Renu S. Karnad Vinayak Chatterjee (Chairman) R. S. Ramasubramaniam (Vice Chairman) P. Ramesh
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Energy Division
Infrastructure Focus
Energy
Highways Railways MRTS Ports Airports Logistics Power Generation Power Transmission Power Distribution Power Trading Power Regulation Coal and Mines Oil and Gas Urban Rural SEZs Factories Industrial Estates
Energy Division
Infrastructure Focus
Housing Townships
Commercial Infrastructure
Hospitality
Energy Division
Integrated Offer
Feedback Ventures offers an integrated suite of services across all steps of the infrastructure value chain. These cover five broad groups which are further categorized into 19 sub-services. Strategic Planning Business Planning Feasibility Financial Advisory Process Improvement Urban Planning Capacity Building Investment Banking PPP Advisory Incubation Project Structuring R&R Master Planning Infrastructure Planning Detailed Project Report Design & Engineering Design Management Construction Management Construction Supervision Energy Division
Consulting
Transactions
Project Development
Project Management
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Energy
Sub-sectors
Power Generation Power Transmission Power Distribution Power Trading Power Regulation Coal & Mines Oil & Gas
Services we offer:
Consulting Transactions Project Development Planning and Engineering Project Management
Feedback is supervising the construction of this new bridge over the Ganges at Feedback is working with the Gujarat State EnergyKanpur on NH-25. Corporation to develop fuel and procurement strategy.
04/03/2009
Energy Division
Total investment in the next 5-7 years timeframe (Phase I): ~ Rs. 10,000 crs (USD 2 bn)
Total Equity Requirement: Rs. 3,000 - 4,000 crs Total Debt Requirement: Rs. 6,000 - 7,000 crs
Steel Grid, CNG Stations, PE Pipeline and Last Mile Connectivity to account for major share of investment Project Cost depends on extent of Geographical Area, Visibility requirement, Demand composition, Domestic connections, Penetration 04/03/2009
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Energy Division
Joint Venture
Gas Owner with OMCs Existing CGD Company with OMC
Pipe/Equipment manufacturer has also shown interest in CGD projects Some are adopting Wait & Watch policy till the first round bidding is over
Interesting to watch the Round One Outcome and profile of Round Two Bidders Bid for 6 cities already submitted. Notification by PNGRB for 7 citiesmore in pipeline
04/03/2009
Energy Division
Business Segments
Gas Marketing Business
Need to have the Integrated view of the Entire CGD business segment
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Energy Division
Economic drivers(1)
CGD Projects
Network backbone Lengthy gestation period Significant capital outlays during initial years Generally Break even in 4-5 years, depending upon the demand, consumer mix and geographical area
Need for
Fiscal incentives Clarity of law Stability of regime
Network exclusivity for the authorized CGD player
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Energy Division
Economic drivers(2)
Transmission pipelines (Cross Country) enjoy a 10 year tax holiday (Section 80 IA) out of first 15 years of Commercial Operation date-Infrastructure status
However, MAT applicable 11.33% of Book profits during tax holiday
CGD projects not yet included under Infrastructure projects Infrastructure status important to ease access to External Commercial Borrowings Development of CGD networks will require imported equipment
Imports liable to Customs duty-Increase Project Cost thus Tariff
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Energy Division
Economic drivers(3)
Gas transmission projects eligible for project import status
Scope should also encompass CGD project Clarity needed
Compression of Natural Gas for supply to CNG Stations is specified to be manufacture liable to excise duty
Eligible input credit should be available
Gas allocation
EGoM stipulated earmarking of 5 mmscmd for CGD projects for Domestic and CNG sale
CGD Company may need to procure gas for Industrial and Commercial consumer category from the open market
Whether gas quantity is sufficient Principle of gas allocation not yet clear Fiscal incentives are expected to entail earlier recouping of investment as well as increase the profitability
04/03/2009
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Energy Division
Rs/$
03.03.2008
03.03.2009
Sharp reduction in Alternate fuel price and Sharp Re. depreciation will substantially impact the CGD economics 04/03/2009
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Energy Division
Possibility of diversion of Domestic LPG Cylinders for commercial use post CGD implementation
Role of Regulatory Agency as well as OMC very critical
Adjacent city having price differential in gas prices due to APM gas supply and nonAPM gas supply Enabling Regulation/ Legislation on Clean Fuel use by the State Government
Need for Enabling Regulation and check on diversion of Domestic LPG
04/03/2009
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Energy Division
Pessimistic volume
Higher network tariff & Compression charges May reduce the winning chance
Pessimistic case for someone may be Optimistic case for others and vice versa
Cost of gas
To fetch reasonable marketing margin Economical for end consumers
Consumer Alternate Fuel Price for Customer in USD/ mmbtu 10 19 9 19 Landed Price for Offered Customer Discount in USD/ mmbtu 30% 15% 15% 30% 7 16 8 13 Demand %
Weighted average Selling price of gas is expected to vary between 9.50 to 10.5 USD/ mmbtu based on current prevailing price of alternate fuel and demand composition 04/03/2009
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Energy Division
Possible development post authorization period CNG: Low Competition as additional operating cost in Daughter Booster Station Domestic: Very low competition as Low volume and low profitability Industrial/ Commercial
Prospect of high volume and high profitability Sufficient incentive for 3rd Party to focus on such segment Potential loss of large industrial consumers could also negatively accentuate load swings in the network making operations difficult Territory having large industrial load are susceptible to more risk Whether the Open access in the CGD business post exclusivity would have the same fete as happened in the Power Sector Probability of Consolidation, Mergers & Acquisitions
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Energy Division
Debt Financing
Financial Institution, Commercial Banks and IFC
Gujarat being a mature gas market, Equity and Debt appetite seems to be high Almost all emerging CGD companies have FIs on Board
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Energy Division
IGL
Initial focus on high margin transport sector backed by regulatory support for conversion; Currently also focussing on domestic and industrial sector Peak leverage : 0.4 (FY 2002) and Current leverage : ~ 0
MGL
Currently focused on building both transport and industry volumes Current leverage ~ 0 Minimal additional Capex, typically being funded by Internal Accruals
04/03/2009
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Energy Division
10 Gas volume (MMSCMD) 5 0 MGL IGL GGCL Purchase Cost (Rs. / m^3) Realization (Rs. / m^3)
*Figures for MGL and IGL are for FY 08 while for GGCL, figures are for CY 07
Gas purchase cost for gas to be sold to PNG & CNG consumers is low due to supply of primarily APM gas in IGL and MGL. In GGCL it is primarily non-APM gas Lowest realization by GGCL
04/03/2009
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Energy Division
Difference in Margins due to the varied consumer profile Average ROCE in FY 08 is in excess of 40 % for all Companies
04/03/2009
Operating margin for MGL, IGL is ~ 40% and for GGCL: 15% - 20% GGCLs CNG business grew by 30% y-o-y, hence improved performance Energy Division
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Total Project Cost : ~ Rs. 470 crs Debt : Equity Ratio: 2.33:1 Expenditure made till February 2009: ~ Rs. 45 crs
Substantial stake holding by FIs shows their strong appetite for CGD projects
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Energy Division
NA NA
Typical Peak Debt : Equity ratio is 2:1 to 2.33:1, Reduces overtime Possibility of higher leveraging also exist Gas cost is expected to constitute ~ 85-90% of the total expenditure
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Energy Division
Debt
FIs Commercial Banks Multilateral Funding Agencies CGD Company not having gas supply security may divest stake to Gas owners (E&P Companies) post authorization
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Energy Division
Threshold Debt Service Coverage Ratio Adequate Integrated Business IRR as well as Network and Compression Business IRR Preparedness for demand penetration Reasonable forecast on expansion of City/ New Industrial Zones
Lenders due diligence is expected to be tighter for Non-Gas owners in the prevailing Regulatory domain
04/03/2009
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Energy Division
Interest rate expected to be ~ 12% with Door to Door Loan tenor of 6-9 years with 1 year moratorium
04/03/2009
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Energy Division
Thanks
Presenter
Rakesh Jain Feedback Ventures, 3rd Floor Central Plaza, Rajbhawan Road, Hyderabad Tel: +91 40 23415085 rakeshj@feedbackventures.com
www.feedbackventures.com