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Sky is the Limit” – said Mr. Faruk Patel when asked about the future of renewable energy and the company’s latest foray into solar energy market place. KPI Global Infrastructure a subsidiary of KPI Group is launching its IPO from January 8, 2019 – January 11, 2018. The Equity right team spoke to the management team of KPI Global Infrastructure Ltd. led by Mr. Faruk Patel (Chairman and Managing director), Mr Shaheedul Hasan(Chief Operating Officer) , Mr Salim Yahoo (Chief Financial Officer) who gave us their inputs about the upcoming IPO and the sector it hopes to lead.
Equity Right team: Can you elaborate on IPP business model?
Shaheedul Hasan: We are a solar power generating company focused on providing solar power, both as an Independent Power Producer (“IPP”) under the brand name of ‘Solarism’ and as a service provider to Captive Power Producer (“CPP”) customers. So under IPP we build, own, operate and maintain grid connected solar power projects as IPP and generate revenue by entering into Power Purchase Agreements (“PPA”) with third parties for selling power units generated through our solar projects.
Equity Right team: Can you also put some light on captive power producer segment and how it will give you a recurring revenue?
Shaheedul Hasan: Captive Power Producer are companies who own an industry where they can utilise their generated electricity. Since KPI does not have an industry at the backend where they can utilise the energy generated we cannot be a CPP. Rather we are CPP service providers. So our clients who are the CPP’s either purchase our land or take it on lease and then outsource the process of erecting a plant to us.
So we have a contractual agreement whereby we complete the entire erecting process and also own the Operations and Maintenance agreement. So the plant is registered in the clients name, has been approved in the clients name and there is a separate meter that runs for their plant. KPI will earn revenue on one-time sale, there also is a recurring income which comes from the Operations and Maintenance agreements that KPI has with their clients. Also if the land has been leased to them they pay money on annual basis. We are one of the few who have made use of this model and are benefitting from it.
Salim Yahoo: The Capex is invested by the client. It is a contract whereby the client will pay KPI in exchange for their services(erecting and installing the power plant). No funds are required from KPI’s end. The clients provide them with an advance to construct the power plant. KPI basically uses its land, expertise, ancillaries and transmission lines to execute the contract.
Equity Right team: Has unit 2 which is in the pipeline bagged any PPA’s?
Shaheedul Hasan: Yes the PPA’s are already signed for the entire Unit 2 (25MW). The PPA’s are for 15 years and the older PPA’s are 3 years and are renewable. The rates at which the PPA’s are signed are flexible . We have signed 3PPA’s with L&T for a total of 5.775MW, 3 PPA’s with UPL for 11 MW and 2 PPA’s with Colourtex Industries Private Limited for 10 MW.
Equity Right team: What thoughts are given on the tenure of the agreements?
Shaheedul Hasan: As far as the longevity of the PPA’s are concerned, longer duration PPA’s provide stability from business perspective. As far as the PPA terms are concerned the agreements states that the rates are signed at 7% discount of the landed rate. That’s the discount that I pass on to my clients. They are linked with the DISCOM’s unit rate. If you look at the historical data of Bloomberg, it states for the last 20 years the rate has been increasing at 6% on an average. But we have been slightly conservative while taking the escalation and have considered it to be at 3%. The Discount rate of 7% is non-negotiable. Whatever percentage I fix with my client it is connected the with net landed rate. The discount rate is not expected the fall below 7%.
Equity Right team: What is the infrastructure for the transmission line and how the operation will work?
Shaheedul Hasan: The transmission lines have been built by us and are being maintained by GETCO. KPI has to pay maintenance charges to GETCO for maintaining the transmission line. There is a contractual agreement between GETCO and KPI for 25 years.The GERC tariff regulation regulates the sale and purchase of power. If you are injecting 66KV and your withdrawal is 66KV anywhere in Gujarat, then there are certain criteria. Transmission charges, transmission losses, wheeling charges and wheeling losses are taken into consideration. The payment happens according to the GERC regulations based on them. So it is an airtight tri-partyer agreement. KPI, consumer and the third party DISCOM who happens to be the seller to the consumer and are bound by the tariff regulations. None of them can take independent decisions.
Equity Right team: How is the tariff decided for the region where we generate energy in a DISCOM?
Shaheedul Hasan: 90% of our customers are based in the same DISCOM. So we produce power at DGVCL (Dakshin Gujarat Vij Company Limited) and supply it at DGVCL. The rates according to the tariff are standardised. Only if the Kilowatt is different will the rates differ.
Shaheedul Hasan: Bharuch is in DGVCL. So having said this point, even if my customer is in UGVCL, PGVCL, MGVCL. These are the three sections apart from DGVCL. The tariff rate will remain identical if I’m injecting at 66KV and withdrawing at 66KV, though my plant and my customer are in two different DISCOM's. So our market is bigger actually since I can sell to any part of Gujarat.
Equity Right team: Who are your current PPA clients?
Faruk Patel: Our existing PPAs are 1.25 MW with L&T, 6.625 MW with Mafatlal Group, 4.6 MW with Meghmani Organics Limited and 3.25 MW with Best Paper Mills Private Limited.
Equity Right Team: What is the average life of a solar panel, what kind of maintenance does it require to utilise the panels to their full life extent and do the existing solar power plants have access to those?
Shaheedul Hasan: The maintenance only needs general cleaning(once in a week) and the land in the vicinity is covered with black soil which is compact in nature and does not create dust. Also the surrounding area is an agricultural area which does not create much dust. As far as the panels are concerned the manufacturer/supplier gives the warranty for 25 years under which 10 years is replacement warranty and remaining 15 years is performance guarantee which is applicable if there is any reduction in the performance of the panels i.e of the output, other than the normal derating that they have mentioned they will compensate by providing with additional panels or additional voltage.
(Solar Panels ar K.P.I Global Infrastructure Ltd. plant in Gujarat)