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Petronet LNG Ltd
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Ladies and gentlemen, good day, and welcome to the Petronet LNG Q1 FY '21 Earnings Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Varatharajan Sivasankaran from Systematix Institutional Equities. Thank you, and over to you, sir.
Thank you, Vikram. Good morning, everyone. On behalf of Systematix, I would like to extend a very warm welcome to all the participants and the management of Petronet to this 1Q FY '21 results conference call. The management is being represented by Mr. V.K. Mishra, Director of Finance; Mr. Rakesh Chawla, GGM and President F&A; Mr. Gyanendra Sharma, CGM and VP Marketing; Mr. Debabrata Satpathy, DGM F&A; Mr. Vivek Mittal, GM Marketing; and Mr. Ashwani Agarwal, Manager F&A. I would like to hand over the call to the management of Petronet now. And we can -- after the briefing, we can move to Q&A. Over to you, sir.
So this has been a very different period. As you all know that COVID-19 has marred all the business equally and we are not an exception to it. Are you getting my voice? It's okay?
Sir, we can hear you.
Yes. So it has been marred by this COVID-19 pandemic. And of course, still, we are able to recover the way we could have done within this quarter. And if you look at the kind of throughput which has been there in Dahej, it was at the level of 181 TBTU as against 206 TBTU in the previous quarter and 217 TBTU in the corresponding quarter of the previous year. And if you look at the total throughput of Kochi and Dahej, it has been in the range of 190 TBTU this quarter, current quarter, and 219 TBTU in the previous quarter and 226 in the corresponding quarter. So there has been somewhat depressed performance this time because of pandemic and because demand was not there and it was very tepid as compared to previous quarters. So it has been down. But of course, we are still able to utilize terminal -- Dahej Terminal at the level of 81% and as compared to 92% in previous quarter and 112% in the corresponding quarter. So throughput has been quite good as compared to the kind of pandemic, which has almost brought down the demand to a very low level. So this is the physical performance. If you look at the financial performance for this quarter, it has been INR 696 crores PBT for the period Q1 as compared to INR 486 crores in the previous quarter and INR 838 crores in the corresponding quarter of the previous year, and PAT has been INR 520 crores as compared to INR 359 crores in the previous quarter and INR 560 crores in the corresponding quarter of previous year. If you look at the growth from the previous quarter, it has been to the extent of 43% in PBT and 45% in PAT. Of course, this growth is not because of any volume, but this is on account of Ind AS 116 which is there. And as you all know, that there was a significant downward profit because of this Ind AS 116 in Q4 to the extent of INR 500 crores. So that is not there. So there has been INR 170 crores benefit this quarter. So this is basically because of that accounting standard that we have been able to show our performance better than previous quarters. And if you look at other reasons which has been there, it is because of the CSR expenses because we had given INR 100 crores of donation to PM CARES Fund. So that was the basic reason why it has been a good performance as compared to previous quarter. But otherwise, volume-wise, it is less than previous quarter and also less than corresponding quarter. So this is the entire thing because we are able to maintain our performance even against such a pandemic. This is commendable. Because if you look at other businesses, they are drastically down in this quarter. But we are still able to utilize our terminal 81%. If you look at the overall utilization of both the terminals, it is almost 66%. So we are still at a better position as compared to other businesses. And we are improving slowly. So I want to assure you that in next quarter, it will be a far, far better performance because at present, we are utilizing our plant at 104%, Dahej plant. And Kochi is also being utilized at the level of almost 17%, 18%, maybe 20% sometimes. So this quarter will be better than this first quarter because our throughput is very good as of now. So that's all from my side. Now I open the house for the questions. So you may ask now.
[Operator Instructions] We have a first question from the line of Rohit Ahuja from BOB Capital Markets.
Sir, just wanted to know on Kochi, we were looking to revise our regas tariff lower. So any agreement on that, sir?
Yes. Actually, we have also disclosed in our notes also last time that we are now charging Kochi tariff at the level of INR 79.14 per mmBtu and now -- earlier it was INR 104.54, so it has come down to INR 79.14 in the previous quarter itself, means Q4. And similar tariff is being charged now. But just we are in discussions with those companies, offtakers, BPCL, GAIL and IOCL. And as soon as there is any agreement reached, we may revise it. But, of course, we would like to retain it at this level only, INR 79.14 because this is the right level. And at this level, there is no impairment of the asset also.
Right. And would it follow a similar one at Dahej with a 5% escalation every year?
Yes, that is being followed. This is as per contract. We are following 5% hike, every year we are doing it.
So we can take INR 79 as a new base and from which there would be a revision of 5% every year?
Yes. Yes, it's now 81 -- INR 83.10 per mmBtu. So this is now at the current year. This INR 79.14 was from 1/4/2019. So 1/4/2020, it will be INR 83.10 per mmBtu.
Right, sir. Secondly, sir, any update on Tellurian deal? We've heard a lot of media reports and apparently they quoted you extended the MoU?
Something I would not like to discuss right now. So just excuse me for not replying this question because it's a very -- something which cannot be disclosed in the press as such. There are certain issues. We cannot discuss this issue openly.
We have next question from the line of Probal Sen from Centrum Broking.
Sir, just you mentioned about the Ind AS impact as well as the CSR expense. So the CSR expense was probably sitting in the other expenditure line, if I'm correct? So that impact is easy to see. And the Ind AS impact would have reflected in which line item, sir, in the P&L?
The Ind AS impact like the ForEx losses will come in the other expenses. And if any ForEx gain that will come in the other income. And this is as far as the ForEx is concerned, and as far as the core Ind AS impact is there, basically, the impact will be, there will be less expenditure in the COGS, C-O-G-S, and that expenditure will come to the depreciation and the interest, finance charges.
Sir, this INR 170 crores benefit, is it possible to break it down in terms of each line item?
See, there was a INR 178 crore loss in the last quarter. That is not there in this quarter. Basically, that was there in the other expenses. And in the other expenses, there were another thing was that INR 100 crores of CSR. That is not there this quarter. And there was a INR 31 crores of inventory loss that was in the COGS basically. These are the 3 major factors that are not there in this quarter, basically.
Okay. So there's a $310 million inventory loss also instead of which the -- it's negligible or there's a gain in this quarter. Is it fair to assume that?
Yes. And there the volume impact is around INR 130 crores at the COGS level, basically.
Downward.
Downward impact.
COGS.
So these are the major highlights basically in the P&L.
Okay. And the second question was, the -- it was mentioned that the current utilization of Dahej is at 104% and Kochi 17% to 19%. Is that current number or is that something that is an average number for Q2 till date that we can assume?
No. This is the existing throughput, which is going on. And what I'm telling you that based on this, we can assume that this will continue up to this end of the quarter till September. So even today, it was 66 MMSCMD throughput. So what I'm saying that it is in the range of sometimes 64, 65, 66 MMSCMD. So this is the range from more than 100%, maybe 104%, 103%, 102%, like that.
Got it. So yes, I mean, for Q2, therefore, sir, we can, on an average, assume close to 100%, even if it is a gradual build up, right?
Close to 100%, not less than that. Right, right, right. Absolutely.
Right. And sir, last question, I'm sorry to again repeat on Tellurian. I understand you can't comment. Is it -- can you at least comment whether the deal has been canceled or is it still alive or not? Or you can't comment on that also?
Excuse me. Basically, there is an MoU, which is valid till December end, we can tell this much. So I think that's enough?
Yes, yes, that's -- I just wanted to understand that the deal is not -- I mean, the MoU is still alive and negotiations are ongoing. That's my interpretation, right?
So it's not to be -- because this is -- we are not supposed to speak on this matter. I'm telling you because this is something very confidential, so please just excuse us for not replying to this question.
Got it, sir. Sorry, to bother you.
Please do not quote this anywhere.
That is -- those are my questions.
So as Mr. Sharma, G.K. Sharmaji has told...
This is unofficially it is good for that.
Unofficial is there, not to be quote anywhere in the press.
Got it, sir. Got it.
Because we are not about to speak on this matter. So this is...
Sir, I appreciate the...
Whatever will be there, anything which is really concrete and really going for any fruitful business scenario discussion, [ we will ] disclose, there is nothing like that. That's what I want to say. It's all just talking, we are just in discussion with them. So this is all going on. It's a general business scenario that we are talking to so many people. We are also talking to NextDecade. We are also talking to other suppliers. So it doesn't mean there is any fruitful deal coming in the scenario. So I don't see any substantial thing happening over there. So if there is anything which will impact the investors, we will definitely come to you. And so there will not be a hush-hush deal like that.
Got it, sir.
Just anticipating and just guessing and doing something. So that is not good for us. And rest be assured that we will not enter into any deal, which is not beneficial to investors of PLL.
Great, sir. Good to hear that, sir. Congratulations.
Thank you.
We have next question from the line of [ Rishit Sitarwala ] from [ Axia Capital ].
Could you'll please elaborate the impact of Ind AS on COGS as well as depreciation and fixed cost. So can you break it down for us, please?
Yes. This quarter, the -- due to the Ind AS, the COGS have gone down by INR 101 crores and the net impact on the PBT -- at the PBT level, after taking into account the depreciation and finance charges, it is INR 68 crores down.
Okay. And could you all please split -- break up the impact on depreciation as well as finance charges?
Depreciation is INR 194 crores. Out of that, INR 84 crores was there and -- is the Ind AS impact. And the...
INR 87 crores.
INR 87 crores is the Ind AS impact. And finance cost is INR 88 crores. Out of that, INR 84 crores is the Ind AS impact.
Okay. And my next question would be around the employee costs. So they are at -- they are significantly higher than last year. So is there any one-off item over there?
These are one-off -- there is -- there are one-off items like INR 5 crores of one-off items was there because in the first quarter, generally, claims like LTA and leave encashment, those come generally as a trend and the other INR 2 crores are attributable to the salary increase and all.
We have next question from the line of Bhavin Gandhi from B&K Securities.
Sir, just wanted to, again, the gross margin per unit for -- as per my calculation seems like 55.1%. If I look at it from -- again, from 3Q to now, there seems to be no change there despite a 5% escalation in Dahej from January and 5% for Kochi. So if you can explain that part.
At the gross margin level?
Per unit gross margin.
Yes. So you were saying that from Q3, basically there is no change in the gross margins?
Yes, it seems lower, in fact.
Okay. Let us -- I mean, we'll answer this question just let us pass this question for now. During course, we will answer.
Yes. And sir, the second question is relating to the Kochi tariff itself that you mentioned INR 79.14, at which there will be no impairment for the asset. So is it possible to know what is the utilization over life that you're assuming where you're saying there will be no impairment? Are you assuming a 40% utilization or a higher utilization there in your calculations?
See it's a -- impairment model is basically tested over a period of time of the life of asset. So what we are doing is that whatever volumes we have contracted for a long-term, 20 years, we're taking the volumes. And as you all know that Gorgon volumes are, of course, are proposed to be brought to that place only, Kochi Terminal only. It's only for the time being that some of the cargoes we are taking at Dahej because of pipeline constraints, but as soon as the pipelines are laid, like Kochi-Mangalore is coming up by the end of August, it should have come by July, but because of some issues in Chandragiri River HDD issues are there, and yesterday, I was in a board meeting where GAIL simply has said, there are issues in HDD. Because some rocky terrain is there. So it's not very easy to just do some HDD through that. So their issue is because of that, it is being delayed but we are still hoping by end of August, it should come up. And then certainly, the utilization will enhance to the level of 30%, 35%. So this is our anticipation, and we hope that gradually, this utilization will increase and we will be having profit even from that terminal like we are having in Dahej. And right now, we have operating profit, but not profit as such in terminal -- Kochi Terminal. So this should...
Sure, sir. And just 1 last thing from my end, sir. On the Kochi tariff as far as the reporting in the gross margins are concerned, sir, have -- are we booked in the last year, it was booked at INR 79 or INR 104 number? And then the provisions were created in other expenses. How was it booked in last year, sir?
Last year, it was INR 79 only because whatever adjustment was to be made, was made in the last quarter. Even in the -- before that quarter also, we had made the provision for that. We had not reduced as such the tariff and the revenue.
[Operator Instructions]
Yes. It's only INR 79.14 throughout the year. So there is no issue.
Okay, all right.
We have next question from the line of Pinakin Parekh from JPMorgan.
Sir, 3 quick questions. My first is, sir, the other expenditure has been a volatile line item over the last few quarters. And if we take INR 101 crores versus we keep 4Q out, but the average of the preceding 6 to 7 quarters has been between INR 120 crores to INR 140 crores. Sir, is the INR 101 crores is the new steady state other expenditure or it should revert back to that INR 120 crores, INR 130 crores quarterly run rate that we used to see in F '19 and F '20?
Pinakin, you are asking about this -- the Ind AS adjustment?
Other expense.
No, other expense.
No. So the total other expenditure of INR 101 crores that is there, how should we take this on a steady state. Once this Ind AS adjustment and everything is out, is INR 100 crores a normal run rate? Or can it go up to INR 130 crores, INR 140 crores?
You see basically.
I'm giving you the details.
Yes, we are giving you the detail, so INR 101 crores what's there. See the other expenses, basically, there are certain expenses, which are directly proportional to the plant utilization. Okay? So just like the power and fuel, dredging, repairs and maintenance, all these things are there. So what we have seen there is due to this one-off COVID impact this time around this quarter, the other expenses have gone down by few -- just like due to the power and fuel expenses going down. And there is nothing disproportional about that. Everything as per the operational standards. So -- but what you can -- what we can say is the other expenses have gone down by around INR 50 crores to INR 60 crores basically.
Okay. Okay. Understood. Understood very much. So my second question is when I look at the volume tick up in Dahej, the long-term volumes are down 8% Q-on-Q, but the service volumes are down only 5%. And given that spot LNG prices, while having recovered still remain stubbornly below $3 mmBtu, while Brent-linked contracts are near $6 mmBtu. How should we look at the RasGas volumes over the next 2 quarters? Because I would assume there will be a certain volume which would need to be fixed for this year. And should we then expect that the long-term volumes will sharply surge over the remainder of the year?
Basically, if you see, as such, we don't see any impact on the long-term volumes. And there is a full consumption. There is no impact seen or likely to be seen in near future.
So just I'd like to add to it, that if you look at the cargoes which we have received in the month of July, it has been -- whatever we have planned 23 cargoes, they have already come here. So what I'm saying that there is no impact as such while uplifting all those volumes in these -- in this quarter. But there has been a downward this trend in the previous quarter -- in the current quarter, I means Q1 because we have also invoked the force majeure clause for 9 of the cargoes, 8 out of which belong to RasGas and 1 belong to ExxonMobil. So this is the kind of scenario. But in this quarter, we have not seen any invoking of force majeure clause for any cargo. So we assume that whatever we have planned, we will bring all the cargoes to our terminal.
Understood, sir. And sir, just last question. There was some media reports that Petronet is looking exploring tenders to about 1 million tonnes of LNG at different price points and then that tender was canceled or reissued. Sir, what's the thought process of that in terms of diversifying its sourcing? And where do we stand in terms of the process of locking in new supplies?
Yes. Actually, this was a RFI process, request for information process. This was not exactly a tender. So what we were doing is we were exploring the market for availability of natural gas at a reasonable price, affordable price. So this was a process whereby we have appointed a consultant who just did the work for -- on our behalf. And we found that in the market, people are ready to place the volume, and they are not worried about the price in the sense that they are ready to contract for a long-term period at a price which is as good as spot price. So what I want to say that scenario is changing now. It's not like that, that long-term contracts, which will be based on some Brent-based index. So now people are ready to place the volume for long term, and they are ready to get the price, whatever is applicable in the daily marker every day. So what I'm saying that this was a simply R&D activity, you can say, research and development, we are trying to explore. And in future, we may process this kind of thing, and we may view for some volume for procuring this LNG on long-term basis at spot price. This was our thought process, that's why we have just awarded a contract to a consultant. And it has come to our knowledge that people are ready to place the volumes. They are not bothered that what is the price. Because now what's happening, the availability of gas is there, plenty of gas is available and customers are not there for long-term contract. So most of the volume, which is not contracted is going in the spot market. So what I'm saying that whatever long-term contract they get, at least they are assured of placing their volume to the period, say, 10 years, 15 years, so that they are assured that, that volume is sold. So people are worried about placing the volumes. That's why they are ready to get the price whatever is available on a spot basis, daily basis. So that was just an activity we have undertaken. And we have not so far decided to how to go forward, but this is the outcome of the process.
Understood, sir. But just to clarify, will -- Petronet historically works on a back-to-back model. So if there is any progress on this, will Petronet start taking price risk on its books? Or will it enter this kind of contracts only when there is a back-to-back off-take agreement with customers in India?
See it's not an issue where I'm getting a gas on a spot price basis, anybody would contract with us back to back. Whatever price is there, of course, in this case, we will also earn some trading margin, marketing margin. But certainly, anybody will be happy to get gas at the spot prices. If you look at the spot price, which is ranging from $2 to -- now it is $3.5 almost $3.65. So this is the scenario because people are worried about higher-priced gas. But once anybody is offering at spot prices, they are ready to take it. So we are pretty confident that whatever volume we procure, if it is at the spot price or daily marker, then we'll be able to place it in the market, and anybody will take it because it is based on the daily pricing of the LNG.
So sir, it won't have any implications for RasGas contract, which is high-priced, as you said, in terms of that. That will be separate? Those volumes will not get impacted?
RasGas contract is very back to back. We are selling it -- it is done around that. So we cannot compare a thing which is done almost 17 years back. Now it is almost on the verge of completion. If possible, we'll think of it, but we are trying to bridge the gap between this long-term prices and the spot prices.
We have next question from the line of Yogesh Patil from Reliance Securities.
My question is related to RasGas LNG price negotiation. Negotiations are still on? And if yes, then any time line, when we can expect output or result on these negotiations? This is my first question.
This is not the -- actually this is at a very premature stage. We cannot comment on these things because this impact our discussions. So we are not going to comment on this question. Because whenever there is anything material happening, we will disclose you. Now at all is not good to talk about.
Okay, sir. And the second question is related to your LNG dispensing station expansion program. As per our understanding, you would be able to benefit only from the charging marketing margins on LNG fuel. So any ballpark number you have back calculated for charging a minimum marketing margins on this fuel?
See, I can just little bit amend your question as well as answer also. It's not only marketing margin, when the LNG is being consumed, we earn truckloading charges also. So as and when this market takes up, then Petronet LNG truckloading charges also earn additional revenue and profit for company asset utilization. And marketing margins because it's a commercially sensitive thing, we are still in multiple discussions and all that. This is not something that at this stage, we can disclose those numbers or something. But we can promise you this is going to be a next big leap business segment for Petronet LNG.
Okay. And sir, last question from my side. Sir, can you give us a guidance how many stations you have planned for next 2 to 3 quarters?
See, we are on top. We are facilitating. You must have seen our advertisement. What we are doing, we are facilitating these stations to come up by authorized CGD entities and OMCs. And you know permission and land and everything it takes some time. If I say in next 2, 3 quarters, something will come up and start dispensing, it is unrealistic. But things are progressing in a very fast pace. And even we are happy to say that it is a focus area of now PSUs as well as CGD entities and we are facilitating them very fast.
We have next question from the line of Maulik Patel from Equirus Securities.
Yes. Sir, can you explain the -- how supply-demand on spot LNG and what's the outlook on the price? And how do you see that where the demand is -- incremental demand is coming up in the Indian market?
So as far as demand is concerned, I'm sure you would have had a look at PPLP numbers, so you would have seen at the low LNG prices and spot prices were $2 or so. And the lot of consumption was going into power sector. Going forward, also, the spot prices are expected to remain low, and there is a coal displacement, which we have mentioned in the previous call also, which is happening. Other than that, there is a regular growth in the other industries in the CGD sector, which is taking place. Of course, fertilizer, refinery sectors continue to be at the pace which they were there in the last year also.
Sir, do you expect this coming winter, the price of the spot LNG generally goes to around 10% to 12% of the oil price in last 2, 3 years. Will it reach to that level or it will probably significantly below...
It's very difficult to give you any number on what the prices would be. But yes, there is a lot of supply in the market right now, a number of U.S. plants are not producing because it was not viable for them to produce at $2 level. But since the LNG prices are inching upwards and are touching $3.50 to $4, they will also start producing. So on an overall basis, it is not expected that the prices will go to $8, $9 level, it should remain in the $5 level, and that is what has been projected in the Platts also.
We have next question from the line of Vinit Joshi from Goldman Sachs.
So my first question is on the CapEx side. So it's a 2-part question. First, can you give us the guidance for FY '21 and '22? And second, can you tell us a bit more granularity with respect to the -- what is the CapEx requirement for the tanks and for the jetties? And finally, any update on the new projects that you're looking at, whether it be Sri Lanka or third LNG terminal in India?
As far as the CapEx is concerned for 2021, it should be in the range of INR 348 crores. So this is how we are planning this year. But in future, we have a lot of CapEx plans, like we are also envisaging to have 2 more tanks in Dahej, 7th and 8th tank. So it will be in the range of INR 1,200 crores, INR 600 crores each tank. And if you look at the jetty which we are proposing to have at Dahej, third jetty. It will be having CapEx of around INR 1,300 crores. So this is the future plan for CapEx. Apart of that, we are also, looking forward, as you have rightly said, we are looking forward to our Sri Lanka project also. And we are in discussion with them. And let us see what happens. But if that materializes, then project is of around USD 300 million. So that would be the kind of CapEx which will be there in future. But right now, as of now, I've told you, this is the -- all CapEx plan we have, 2 tanks and 1 jetty and the CapEx plan for the year, INR 348 crores.
So this INR 348 crores, it would probably not include anything with respect to the tanks and jetties. So should we assume that tank and jetty expenditure will happen over the next 2, 3 years, gradually?
I think some part of CapEx is there because we have already invited tender, an open tender yesterday only. Likely to award this, so maybe some INR 50 crores, INR 100 crores maybe paid this year also. But this is a project for 3 years. It takes around 3 years, 39 months. So it will be taking 3 years to spend all that amount. But this year also, there's certainly some expenditure initially.
All right, sir. And just 1 last question. Sir, can you just give us the service fee or the regas income for the quarter and last year?
The regas income.
Yes, the regas income was INR 500 crores for this quarter. And the last quarter, it was -- last quarter, it was INR 523 crores and corresponding it was INR 552 crores.
We have next question from the line of Manikantha Garre from Axis Capital.
Yes. Just wanted to check, what is the CapEx done in Q1 out of the INR 348 crores?
This is actually very -- Q1 is already expired. So I don't think any major expenditure has been incurred. But normally, CapEx is not seen in quarterly basis -- on quarterly basis. It's normally, you see on annual basis, how much CapEx is there. So it may vary. Because project -- as you very well know that in first quarter, there was lot of shortage of labor, material. Everything was difficult. So maybe that much CapEx may not have been done. But in second quarter, third quarter, of course, we will pick up it and certainly, some more expenditure will be there in second quarter. So it's not specified for first quarter.
Okay. Sure, sir. And the second question would be, sir, if you can please provide an update on the Gorgon LNG. What's happening there with respect to the Train 2 which is under -- which was under maintenance. And of course, it is now deferred to September, I guess, for the start-up, which is one of the main reasons for the surge in -- falling in the prices. Can you just provide any update or any color with respect to that?
We also read the news. But none -- as in the contract, there is a provision that the supplier can supply from elsewhere so that's what will likely happen. That -- in fact, currently, also, we get a lot of cargoes from Abu Dhabi or Oman under the Exxon SPA. So that may continue in future also because it has a right to supply from alternative sources. So that should not impact our contract per se, but yes, you are right, right now, Train 2 was under maintenance because there was some issue with the propane kettles. And now Australian government has also issued a mandate that they will be checking Train 1 and 3 also. So the plant may be out till September end. That's what the media reports says. And that's -- you're absolutely right. That's one of the reason why the spot prices are moving upward. In fact, when I'm seeing today, JKM is being around $4.18 for October. So that's all I would say there.
Sir, just 1 related question here. The sense that I'm getting here is that there is a possibility of Train 1 and Train 3 also probably facing similar design issues. Are you hearing or sensing something of that sort or no?
Operator of the facilities is Chevron, and Exxon has told us, we are in touch with Exxon on this subject. And what they have told us, as of now, there is no impact on the scheduled cargoes of Petronet.
Sure. And if I can squeeze in my last question here. Last quarter, you mentioned that the force majeures that you have raised on 9 cargoes, the operators are yet to agree on them. If you can please provide an update on the same.
The discussions are continuing on that. That's all at this point of time we can say. Nothing has been concluded as yet.
If I can like check on that, what is dragging the discussions here? What is the mood point here, mainly, if you can...
So we would not like to detail. We can just give you an update. So as of now, the -- so it has not reached the conclusion.
We have next question from the line of Sagar Sanghavi from JPMorgan.
Ask this question first, if you could just provide an update on the Bangladesh project. In the annual report, you have mentioned that you submitted an expression of interest. So is this through the bidding process? Because I was under the impression, we were more interested in a one-on-one discussion. So any update here first?
You you have very rightly already said that this was in that entering stage only. We had given expression of interest. But so far, nothing has happened. And because they are inviting tenders, so it could be anybody's game. Earlier, we envisaged that this will be a G2G contract and we'll be awarded that contract, that's not happening. So just we are keeping our fingers crossed. We don't know whether we'll get that or not. Because there are so many contenders for the bid. So at this stage, nothing more can be said.
Understood. Okay. And the other question on Kochi, you had mentioned that after August when the pipeline is done, maybe we'll reach our utilization to 30%, 35%. So how long does that generally take? Will it happen within few quarters?
By end of this financial year, it should happen.
By end of this financial year. And just to confirm, we are already -- since this April, we are already booking at INR 83, right?
Right. Just for...
We have next question from the line of S. Ramesh from Nirmal Bang.
See, if you look at the current run rate, will you be able to deliver the same volume as the same quarter last year? Last year, you did 250 trillion Btu. So -- or will it be slightly lower than that, sir?
Very difficult to give. Because as we mentioned that we are running at 100% rate or more than 100% many a times. So hopefully, on that sense, it will be closer to the last quarter -- last year same quarter.
Okay. So in terms of the Kochi economics, is it possible to share the update that capital cost? And out of your total employee and other expenses, what proportion goes to the Kochi terminal?
See we do not publically push the results as a segment, different segment. So it is not possible to disclose that number.
Yes. But is it possible to give what is the proportion of capital employed in Kochi as a percentage of the total?
No. We can't.
Okay. So if you're looking at the current demand outlook, we saw some increase in refining segment and some increase in the regas segment. But is there a similar trend of growth in the power sector because of the low gas cost, and would you expect that to continue?
It is much more than that. It is much more than. If you see in the recovery, major part of that has come from power sector, apart from other sectors have also started consuming at full.
Last quarter that credential was probably -- the last month June, probably the highest ever in the country. That's what I would say, power sector.
Okay. Okay. So if you go back to the Kochi tariff, if one were to do a long-term cash flow model, on this INR 83 for this year, is it possible to assume a 5% annual escalation every year, sir, for the next 10, 15 years if you take the life of the asset?
This is as per the contract. So what we are following is given in the contract itself.
Yes. So there's a 5% annual escalation. Okay.
Annual escalation.
We have next question from the line of Amit Rustagi from UBS Securities.
Sir, could you elaborate about our East Coast LNG terminal in India? And what will be the model we will be looking at for it? Are we going to prebook the capacity like our earlier terminal? Or even if we don't get the customers or long-term contracts, we will still go ahead with the terminal?
This question is very difficult. We are going for the terminal, and we will try to tie up even before that. But capacity 100%, it will be booked. We cannot assure you. But certainly, some benchmarking will be there, 30%, 20% capacity shall be booked. So that, at least there is a minimum load over there. So we are trying for that, but nothing can be said at this stage. And we would like to have at least 30% capacity to be booked beforehand. So that there is an assurance in future, there will be utilization of that plant.
And sir, what will be the status of pipelines around that terminal?
That is there -- because if you look at -- there is a pipeline, Angul-Srikakulam pipeline, which is there from there tap off will be around 20 kilometers only to this co-power -- co-terminal. So we are awaiting that. That pipeline is late because work is already going on. Work has been awarded by GAIL. So once that pipeline is laid, then the distance will be hardly 20 kilometers from that place. So we -- this pipeline, we may have to lay.
And so we would be another terminal on this project Urja Ganga Project because Urja Ganga Project already has the...
Our intention is to have 1 terminal at least on the East Coast because East Coast is a reason which is deprived of utilization of gas, but now Urja Ganga pipeline is coming up. So certainly, terminals are there, 1 or 2 are already there, but we can also have 1 more terminal, and it can also be utilized over there because if you look at on the West Coast, we have so many terminals. But on East Coast, we have only one this Dhamra and 1is Ennore but Ennore is extreme south. So we are hopeful that it will be a good investment here.
We have next question from the line of Avadhoot Sabnis from CGS-CIMB Securities.
Yes. Can I -- what would be the Gorgon volumes at Dahej this quarter?
Gorgon volumes at Dahej.
At Dahej it's 8 to 9 cargoes. 8 cargoes to 9.
Around 8 TBTU.
8 TBTU?
Yes.
Okay. Okay. And would I be right to assume that if the offtakers -- sorry, if the producers RasGas or Gorgon do not accept the force majeure, then the worst case is that you may have to offtake those 9 cargoes sometime later during the year?
No, no, this is not the case. Actually, this is as per contract. If you look at force majeure clause, it is very clearly written. It's only a matter of discussion. We are doing it. Otherwise, very clearly, this clause is defined that any epidemic is happening over there, then we can invoke this clause. So we are quite sure that we have done the right thing. The only thing is that there is another clause where there is a mitigation of the force majeure clause. So we are discussing in future, we may take it and the mitigation clause and we may take the cargoes in future. But there is no time frame for that when we'll be taking it. But at this point of time, what we have done is rightly done and as per the contract.
Okay. So even the worst-case is that, even if we have to take the 9 cargoes, it maybe any time during the sort of value decreasing the...
Rest of contract period.
Yes, okay.
We have next question from the line of Vikash Jain from CLSA.
Can you just -- a bookkeeping one, can you just give me a bridge of OpEx from 1Q last year to 1Q now, it's down about INR 40 crores. So what really is causing that? I know you've tried -- discussed a lot, but I'm a little mixed up on this. So what really is causing the OpEx decline from 1Q to 1Q?
See the -- mostly, the impact is the volume impact there is in the 1Q to 1Q if we see last quarter, we did about 226 TBTU. As against that, we have done 190 TBTU which comes to around 36 TBTU difference, which is about 11 cargoes. So effective there are multiple things like there are certain cargo receiving expenses, cargo handling expenses and the power and fuel because of the low utilization of the plant and the repair and maintenance have also gone down because of this pandemic. Whatever minimum repair and maintenance that was required in the plant that was done. And dredging expenses are there for...
Sure. Sure. So it's largely because of lower volume, basically, large part of it is variable and some effect from repairs and maintenance?
For that I'm giving -- additionally, answer the previous question. Of the gross margin level. Basically, the only difference happens at the gross margin level is because of the handling of the spot cargoes and the trading margin there also. And we do not disclose those numbers. But then the only differential at the gross margin level is that.
Similarly, there is also a reasonable change Q-o-Q in I think if I were to look at interest expenses as well as -- this Q-o-Q I'm talking about as well as this, sorry, other income. Other income is down significantly and interest expenses are also down. Is there -- is this more to do with the Ind AS aspect?
No. Other income, you see, it is because of the -- basically, the investment income, whatever investment income that we earn. The rate...
Yes. Because your other income is at some -- you're 10-quarter low or something like that, if I were to look at that.
Because you have seen that the repo rates have gone down.
Okay, okay. So it's simply because of that. Yes.
Yes. But although the base of cash, base is the same, but the investment income has gone down accordingly. And to answer your question regarding the interest and the other expenses we have already answered. And the finance charges and depreciation, as you know, this is the Ind AS impact. It will be in the current quarter number, then you have to knock off INR 87 crores from the depreciation and INR 84 crores from the finance cost and Ind AS impact.
We have next question from the line of Vidyadhar Ginde from ICICI Securities.
Yes. So my question was that are you likely to go ahead with the new contract for sourcing LNG only if it is linked to spot LNG? Or you might be open to contracts which are even linked to oil or hydrogen?
See we are thinking of [Technical Difficulty] yes, actually, whatever we have started the process of RFI, this is basically intended to procure for the volumes for future. And we are also looking forward to have some contracts after 2028. So this is a step towards that. So what we are envisaging that in future, if we get a contract, which is reasonably priced and is sensitive to the local -- that spot prices on day-to-day basis, then that should be a good run for the Indian market. Because if you look at the kind of price now, there's a big gap between spot and long term price. So that can be bridged now with this kind of contract. But this is our thought process. And let us see, but we have not started so far doing that here.
So are you basically saying that you may do multi -- more than 1 contract, 1 which is spot-linked and 1 which is under this RF -- or if just...
Whatever contracts are going on, they are already there. RasGas is there. ExxonMobil is there.
Correct. And I'm talking about new contract.
Yes, new contract will be there, then we will have on this basis only, whereby we can match those prices with the spot price [Technical Difficulty] it will never be more than spot price, it can always be less than that or maximum spot price. This is the kind of model we are working on.
Okay. And what kind of demand do you see for spot price kind of linked contracts? Prospects that we're looking?
As we have already invoked this sector and we are trying to instigate all the OMCs as well as CGDs. And we have opened advertisement as our VP Marketing told. So this is the thought process that this is a new segment, which is coming up and it has a potential of 7 to 8 mmBtu in future if it is successful.
So what kind of pricing can...
Upfront fueled by LNG. This is going to a big sector in itself, a big segment. What we are envisaging that this can be utilized over there. Moreover, the CGDs are coming, there are a lot of pipelines will be laid in next 5 years. So we hope that the consumption will substantially increase in CGDs also. So volume will be coming in that sector also. So I think there is ample scope for future for growth of LNG. And we are doing it in that direction only.
So are you basically saying that you will go with the supplier who is going to supply at close to similar to spot LNG?
What I'm telling is that we will be doing as for the -- with the supplier who is offering the price at a formula which is never more than a spot price on rest India basis or JKM basis.
So which in a way, is your answer to the Tellurian question also or any other suppliers, this is the benchmark they have to meet?
This is not what I have said. This is you are making it...
No, no, I'm asking you.
Yes, so it's your doing.
No. What I'm only saying is that, sir, this will give a lot of comfort to investors. If you say that any contract you enter into with any one. Sir, I'm...
Because there is no meaning of any long-term contract which is not matching with the spot prices. Now at least.
Okay. Second question is on this Kochi regas charge change decision. When do we expect finally this issue to be completely or either way, whatever decision is taken because you had said it was referred to a committee of independent directors. When do you expect a final decision on this?
This quarter, the second quarter, it should be over, whatever is there.
Okay. And lastly, this East Coast terminal what is the kind of time line you are looking for?
Time line for?
East Coast terminal.
East Coast terminal. It is -- actually, we are still in planning stage and we have to take the proposal to our board. And once that proposal is approved, then only we will do it. But of course, we have a lot of hopes. We should be taking some decision. Maybe in the next 6 months, it should be there.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Varatharajan Sivasankaran from Systematix Institutional Equities for closing comments. Over to you, sir.
Thank you, Vikram. Thanks all the participants for taking time out to attend the call. Thank you, management, for giving us an opportunity to hold this call. Thank you. Have a nice day.
Thank you very much.
Thank you. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Systematix Institutional Equities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.