Bangladesh project could tone down losses for Sembcorp's Indian plant

It is a long-term deal that may add up to the firm's marginal profit.

The long-term Power Purchase Agreement (PPA) for Bangladesh clinched by Sembcorp Gayatri Power Limited (SGPL) power plant could narrow down SGPL’s losses, DBS Equity research said.

The contracted capacity represents around 19% of SGPL’s 1,320MW design capacity, which currently runs on short-term power contracts.

“SGPL has been operating at merely cash breakeven level most of the time since commencement, and recording net losses of more than $20m a quarter, except for Q218 that saw losses narrowed to $3m,” DBS Equity Research noted.

In an earlier announcement, Sembcorp Industries said that SGPL received letters of intent from the Bangladesh Power Development Board (BPDB) for the firm to supply 250 megawatts of power to Bangladesh over a total period of 15 years.

“We understand the tariff structure comprises a cost escalation component, which allows partial cost pass through, and expected to help profitability of the plant,” DBS Equity Research said. “We will have more clarity upon commencement of the PPA following completion of procedural requirements and government approvals, hopefully by Q4 2018.”

Assuming SGPL’s long term PPA will add up to the Indian plant’s marginal profit, DBS Equity Research thinks that expected losses could be slashed by around $3m a quarter which represents about 3% of the group’s bottom line in FY2019.