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Edited Transcript of PETRONET.NSE earnings conference call or presentation 9-Feb-19 4:30am GMT

Q3 2019 Petronet LNG Ltd Earnings Call

New Delhi Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Petronet LNG Ltd earnings conference call or presentation Saturday, February 9, 2019 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ugish Pardeep

Relance Security - Analyst

* VK Mishra

Petronet LNG Limited - Director of Finance and CFO

* Pankaj Wadhwa

Petronet LNG Limited - SVP Marketing

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Conference Call Participants

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* Rakesh Sethia

HSBC - Analyst

* Mandar Pawar

Kotak Asset Management - Analyst

* Sanjay Mookim

BofA Merrill Lynch - Analyst

* Probal Sen

IDFC Securities Limited - Analyst

* Vijayant Gupta

Edelweiss Group - Analyst

* Rohit Ahuja

Bank of Baroda Capital Markets Limited - Analyst

* Aishwarya Agarwal

Reliance Mutual Fund - Analyst

* Vinod Bansal

Franklin Templeton Investments - Analyst

* Amit Shah

BNP Paribas - Analyst

* Mani Ghanta

Axxess Capital Partners - Analyst

* Pritesh Chheda

Lucky Investment Managers Pvt Ltd - Analyst

* Vikash Jain

CLSA - Analyst

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Presentation

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Ugish Pardeep, Relance Security - Analyst [1]

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Ladies and gentlemen, my name is [Ugish Pardeep] and I am the oil and gas analyst for the [Relance] Security. We are pleased to have with us today Mr. VK Mishra, Director of Finance, and his team to talk about the Petronet LNG Limited 3Q FY19 results.

May I now hand over to Mr. Mishra for opening remarks, which will then be followed by question-and-answer session. Please go ahead, sir.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [2]

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Good morning, everybody. And highlights of the Q3 that we have been able to have the highest ever throughput of 639 TBTU as against 634 TBTU in the last period of similar nine months. So there is growth from that point of view.

And as far as the PBT is concerned, it has been INR2,579 crores as against INR2,264 crores in a period of nine months the last year. So there is a growth of 14% over that. So this is also highest ever PBT.

As far as the PAT is concerned in the period of nine months, current nine months, it has been INR1,715 crores as against INR1,555 crores in the similar period last year. And there is a growth of 10%.

These are the highlights. But if you go to the quarterly results, it has been slight on the downside. And the total throughput has been 202 TBTU as against 215 TBTU in the last quarter and 220 -- 217 TBTU in the last quarter and 223 in the corresponding quarter.

As far as the Dahej plant is concerned, it has operated at 103% capacity as against 110% in the last quarter and 113% in the previous quarter. And has the processed LNG volumes of 197 TBTU as against 211 TBTU in the last quarter and 215 TBTU in the corresponding quarter.

And if you go to the quarterly financial results, then PBT has been INR811 crores in the current quarter as against INR867 crores in the previous quarter and INR748 crores in the corresponding quarter. And if you look at the PAT, it has been INR565 crores in the current quarter as against INR563 crores in the previous quarter and INR529 crores in the corresponding quarter.

So if you look at the PBT, it has been less as compared to last quarter. But if you look at the PAT, it has been slightly higher by INR2 crores in the current quarter as compared to the last quarter. The reason being that we have claimed tax holiday benefit under Section 80IA to the extent of INR113 crores. It has given a benefit of around INR40 crores, so tax expense has considerably reduced in the current quarters. And the total annual figure for the tax holiday is likely to be around INR150 crores.

So that is why there is an upside in the current-quarter impact. So this has been possible to have this kind of throughput of INR639 crores because of higher volumes and better efficiencies in the office.

So these are the highlights of this quarter. Now I open the house for questions, so you may come and ask questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Rakesh Sethia, HSBC.

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Rakesh Sethia, HSBC - Analyst [2]

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Yes, hi, sir. Thank you for this opportunity. If you could give us some update on the startup of the Kochi pipeline. And also help us understand two more relevant issues. What is the quantum of volume you would expect to deliver, say, in the next financial year? And how much do you think these volumes can go up during the next two to three years?

But more a slightly long term, but if you can help us understand when does Kochi reach near its full utilization? And also on tariff, if you could clarify if your customers are in any negotiation to revise down their tariffs, at least for the Kochi in the near term, especially once the volume starts to increase.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [3]

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Kochi pipeline timelines are around May to June to be completed. So we are expecting after that we may be enhancing our volume utilization of Kochi terminal. And right now, it is only 8% to 10%, but in future the pipeline is there. Certainly it will increase and it may reach up to 1 to 1.2 MMTPA. As of now, it is only 0.55 MMTPA as of today.

So I think we are also waiting and [deal] has promised that it is likely to be completed by June 2019. So after that we are expecting to increase the volume utilization of (technical difficulty). So this is the scenario. And as far as the volume next year is concerned, so I will ask our colleague Pankaj Wadhwa to give a detailed breakup of how it will be detailed in next year volume.

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Pankaj Wadhwa, Petronet LNG Limited - SVP Marketing [4]

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So as we have been sharing that our expansion project at Dahej is likely to be commissioned by June this year. And all the efforts around to [precon] that expansion. So based on that, we have requests from various potential consumers about taking more volumes and we are compiling those requests from various (inaudible).

We do see that by the time the expansion stabilizes and it is able to give a full throughput, it will be the later part of this financial year. So that is the only guidance we can give as of the next few months. But yet as we go along and the expansion stabilizes, the market also sees the impact of that. So in the next two to three years, we should be able to achieve a utilization to the nameplate capacity, which should be 17.5 million tonnes per annum.

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Rakesh Sethia, HSBC - Analyst [5]

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Thank you, sir. Also on the tariff, if you could clarify. First of all, have you taken the price -- a 5% usual price hike which happens in the Dahej beginning this year? Also, are your customers at Kochi in negotiation with you to revise down the tariffs, especially when the volume starts to increase at Kochi?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [6]

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So let me take these two one by one. So far as the Dahej tariff increase is concerned, yes, that has been effective from January 1. So this year also a significant hike has been taken and it has been accepted.

Regarding Kochi is concerned, so last investor call also we had a discussion of this issue. And as you have been saying that there is certainly a gap in the tariff being charged between Kochi and Dahej and there has been sort of a request that we should align such prices.

We have been saying that the Kochi volumes throughput as of now is very little. And even as a standalone Kochi terminal, it doesn't give us much of a benefit if we are able to -- if we reduce the tariffs in any manner.

But as I would like to kind of share with you that the coast pipeline commissioning we are expecting an increase in the utilization of Kochi terminal. And we will be open to be supportive to the market to give them any commercial relief if that helps in increasing that kind of a throughput.

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Pankaj Wadhwa, Petronet LNG Limited - SVP Marketing [7]

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Okay, thank you very much, sir. All the best.

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Operator [8]

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(Operator Instructions) Mandar Pawar, Kotak Mutual Fund.

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Mandar Pawar, Kotak Asset Management - Analyst [9]

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Good morning, sir. Thanks for the opportunity. In the opening comment, you mentioned about you had the highest ever volumes. But if you sort of break down in quarters and if you look at the past six quarters, the volumes have been trending down.

Just wanted to if you can give some more color as to what is leading to those little bit decline in those volumes? Is it an offtake issue or is it something about maintaining the high utilization consistently?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [10]

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I think this last quarter there has been some reduction. Two, three cargoes have been less because the demand in power sector has been on the downside. So that is the major reason that now this number has witnessed a little bit lower consumption of LNG. So that is the major reason.

Otherwise, if you look at all three quarters taken together, then it's higher than last year and it is the highest ever even if you compare with any other nine-month period. So it is only for the time being it has happened, but we hope that it will improve in the last quarter, January to March.

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Mandar Pawar, Kotak Asset Management - Analyst [11]

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All right. So that [NT] power, you don't see any other offtake issues or any reduction in offtake from the customers, is it?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [12]

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We don't foresee any such a situation. Only expected volumes.

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Mandar Pawar, Kotak Asset Management - Analyst [13]

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All right. And typically do we have visibility for the fourth quarter? Because we have seen in the past where some of the fertilizer units taking shutdowns and the volumes tend to be a bit lower in the fourth quarter. Should we expect a similar thing happening this time around?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [14]

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As of now, you see fertilizer does constitute an important consumer downstream. But as of now, we have no such indications that anything drastic will happen which will lead to a reduction in our send-out. So as (inaudible) said, that send-out seems to be profitably being maintained at good levels. We don't expect anything drastic happening.

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Mandar Pawar, Kotak Asset Management - Analyst [15]

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Okay. And one last question from me. Even though the volumes have been on the lower side, demand is, if you look on a gross margin per MMbtu or EBITDA per MMbtu, it is on a higher slate and sequentially higher. Is it to do anything with the fixed capacity charge or any take-up that is leading to that bit of a stable margin?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [16]

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[Maybe facilitate] as this is a win actually collected from the customers. But there is no, I mean, no take-or-pay as such and demandings have been there in the spot volumes.

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Mandar Pawar, Kotak Asset Management - Analyst [17]

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But there is really no negligible volumes this time around, spot volumes. So the insight, it is something to do with the third-party polling volumes that we have, too?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [18]

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[LNG sessions] have been also there in the plant operations as well.

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Mandar Pawar, Kotak Asset Management - Analyst [19]

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Okay, all right. Thank you very much, sir. That's from my side and all the best.

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Operator [20]

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Sanjay Mookim, Bank of America.

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Sanjay Mookim, BofA Merrill Lynch - Analyst [21]

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Yes, thank you. Morning. Quick question: if the pipeline on Kochi has been shifted to June, does that run into monsoons? Is there some deal potential risk to completion on that account?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [22]

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Yes, actually, there have been a reason why it has been a little bit extended to June. A study portion, a study which has been conducted, it has fell in the monsoon season. So somehow it could not be completely analyzed. It was scheduled to be completed by December, but GAIL has been informed that there were some issues in [Ashdedi] in certain areas. So it could not be done.

But they have assured us that this will be done by June 2019. So we are believing on their information and feedback, and hopefully before monsoon we should be ready for that.

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Sanjay Mookim, BofA Merrill Lynch - Analyst [23]

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Right, sir. And sir, a question on the impact of new terminals. Are you from an industry perspective seeing any new utilization of either the Mundra terminal or anything else that is happening in the industry?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [24]

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No, actually, we are having already a tie-up with the offtakers, so we are not much impacted. But of course, we will to try to have some new contracts, some new re-gas agreements by (inaudible). So it is a question of their survival and their tying up with the customers. As far as we are concerned, we are assured that we are having a long-term contract with the offtakers and they will continue to be so in the future as well.

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Sanjay Mookim, BofA Merrill Lynch - Analyst [25]

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But so my question was have you seen or do you know of any volumes being shipped to Mundra in this quarter, for example?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [26]

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No, we have not --

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Pankaj Wadhwa, Petronet LNG Limited - SVP Marketing [27]

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We have long-term tie-ups and we are committed to the offtakers as the users are committed by that. And so that essentially we are not seeing any declines or any reduction from any other terminals. Not only ones that can be diverted (inaudible) and has been in existence for many years. So we have not seen any that have the sign of shifting from this.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [28]

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Regarding, it is only a case that we are not able to provide a slot for any cargo that people are going to Hazira or any other terminal. If they find that Dahej has got any slot for any cargo, the first preference is always Dahej. So once we have [tank top] situations or capacity in those slots for any kind of cargo, then only they are moving to some other place. This has been the scenario in the past so far.

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Sanjay Mookim, BofA Merrill Lynch - Analyst [29]

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Okay sir, thank you.

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Operator [30]

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Probal Sen, IDFC Securities.

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Probal Sen, IDFC Securities Limited - Analyst [31]

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Thank you very much for the opportunity. Good morning. A couple of questions. One, the Kochi pipeline completion, which is in June 2019, you said that you expect the volumes to go up to somewhere around 1 to 1.2 MMTPA.

Now, correct me if I am wrong, sir. The earlier guidance was that over -- gradually, the volume just from this leg alone would be about 1.5 million tonnes. So the reason for the slightly lower guidance is only because its completion is through the year and FY20 when we can expect the volumes to reach that limit? Is that a fair way to look at it?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [32]

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So if we look at the profiling of the consumers who will get connected to the Kochi-Mangaluru section of the pipeline, there are three major consumers. One is a fertilizer company, Mangalore Chemicals & Fertilizers. Speaking specifically about them, they are ready to receive that as and when it reaches them. So they have certain volume.

Then there are two consumers, MRPL and OMPL, both (inaudible) company. We believe that work [gone there] and is also going on to convert to natural gas. And by the time they complete and the ramp-up is there, that might be a few more months from the time they receive the order and are ready for gas.

Within this segment, we are also expecting that [many] city gas distribution projects have been given now and as that demand also picks up. So, yes, 1.5 million tonne kind of a thing is something which we -- our (inaudible) city will have over a period of time. It may not happen in the next few quarters as such.

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Probal Sen, IDFC Securities Limited - Analyst [33]

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Got it. Which is what I was asking. That this is more a specific guidance, let's say more from an FY20 perspective. And 2021, 2022 might see a little bit of a ramp-up with just this pipeline alone, right?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [34]

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Yes. That is a correct assumption.

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Probal Sen, IDFC Securities Limited - Analyst [35]

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So one more question if I may. Just some color on CapEx plans for 2021 and any update on the international project?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [36]

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CapEx planned for 2021. We have a lot of things in mind, but unless those materialize, we cannot comment. But of course, we can give an overview of what we are intending to do.

As you very well know, we have mentioned in the earlier con call also a Bangladesh project and a Sri Lanka project; they are always on our target. And we are expecting and there is a [date] on that also because Sri Lanka, we have been going ahead and a financial advisor has been appointed for that project; legal advisor and FSRU advisor are also in line.

Apart from that, we have also submitted a term sheet for our joint venture agreement and term sheet for our gas purchase agreement. And other waterfront term sheet likely to be there.

As far as Bangladesh is concerned, there is little bit of issue there because our nearest project was supposed to be on Kutubdia Island. And recently Bangladesh government has informed that they have reserved it for their [null] base. So it is unlikely to be available for the land-based terminal at Kutubdia Island.

So now they have offered some Matarbari [pariah] for the project, so we will have to conduct the studies once again for the feasibility of that project. So we have requested Bangladesh government to continue to be at Kutubdia, but if it is not likely to happen, then they may shift it to Matarbari or [Terra].

So again, we will have to do it. And they have expressed that the [eventual] participant and expression of interest in the coming time. And we have requested that this is a government-to-government project and should be straightaway awarded to Petronet LNG. So we are in the process of that, but we are not very keen to participate in a bidding process for that kind of a terminal. But if it is awarded on a nomination basis on government-to government-basis, then certainly we will go ahead with that.

So there is an issue in Bangladesh right now because of change of place of terminal and other issues like bidding process. So we are looking at it, but we are not completely ruling out the possibility of not participating in the bidding process. But it is like that. The status I have just confirmed you, but let us see in the next few months what it turns out to be.

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Probal Sen, IDFC Securities Limited - Analyst [37]

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That is very helpful, sir. Thank you so much.

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Operator [38]

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Vijayant Gupta, Edelweiss.

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Vijayant Gupta, Edelweiss Group - Analyst [39]

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Yes, hi, sir. Firstly, I had a question on the recent change in contractual terms wherein 1 million tonnes would be shifted from our long-term volumes to service volumes. Is there any particular reason [wherein] this, given I'm assuming that the contractual terms with RasGas remain the same?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [40]

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So when we find the sentiment with RasGas as a part of an overall package, the intent always was that it should be that it claimed the names of the beneficiaries. And the reason has been the tax optimization.

Because as you know, the gas which comes to Gujarat and then moves out from Gujarat attracts double taxation situation. So to take care of that it was always our intent. It is only that it took some time to affect that.

So having said that, we do not envisage any impact on Petronet's margins because we continue to earn our tolling margins on that volume or the regasification cost tariff on those volumes. So there is no change, so the bottom line is the same.

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Vijayant Gupta, Edelweiss Group - Analyst [41]

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But am I correct in saying that if the volumes are acting or stay the same, they can shift those volumes from your terminal to, say, some other terminals in the future?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [42]

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That is not the correct understanding. So the volume keeps on coming to Dahej and/or Kochi.

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Vijayant Gupta, Edelweiss Group - Analyst [43]

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So ultimately, all these third-party volumes -- the long-term volumes would shift to service volumes?

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Pankaj Wadhwa, Petronet LNG Limited - SVP Marketing [44]

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No, no. [That is a total company].

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [45]

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It is only 1 million tonne we are talking of. We are not talking of the other contract as of now.

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Vijayant Gupta, Edelweiss Group - Analyst [46]

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No, but if there is a taxation benefit, then ultimately we would see a completion --

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [47]

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As we mentioned, it is already part of the structured deal which we signed in 2015. So it is not something new. And I am sure you will be aware that this 1 million tonne volume was being set up for use the capital D&A, which we had with them. But it does not impact our bottom line; it is only impacting [our top line]. And we don't expect that other contracts, which is [smart] one, the largest one, it will come with a similar suit.

Because primarily this volume was also being used for internal consumption of GAIL IOCL and BPCL. So there, the legal they have takes advantage.

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Vijayant Gupta, Edelweiss Group - Analyst [48]

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Okay. And secondly, sir, so the Mundra and all terminals, they have not yet tied up with any gas producer for a long-term contract. I think they are still looking for spot cargoes. Is there any reason why this is happening? And do you see offtakers demanding more spot volumes than tying up into long-term contracts?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [49]

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Looking at specifically each of these terminals. So one -- so far as I know terminal is concerned, it has still not been fully commissioned and downstream pipeline issues are there. So the reason for not tying up of long-term volumes for offtakers is that they still do not have a visibility of how much volume will flow through those terminals to the end consumers.

And again at Mundra also, although the terminal has been ready, we have not seen its commissioning happen for a variety of reasons. That again does not encourage any commitment on a long-term basis. So, yes, perhaps these two terminals will initially start on spot volume basis; that is our understanding. And as the demand picks up as the network of pipeline is constructed to connect to the consumers, then we might see longer-term volumes coming in there.

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Vijayant Gupta, Edelweiss Group - Analyst [50]

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So there was one cargo which was supposed to arrive at Mundra but then ultimately got diverted to Hazira. Why was this, if you could please provide some clarity?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [51]

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We will not be aware of the developments which are taking place at Mundra, which is privating its commissioning.

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Vijayant Gupta, Edelweiss Group - Analyst [52]

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Okay. And sir, am I fair in assuming that trading margins have improved quarter on quarter?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [53]

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(inaudible) to me? We don't comment on it.

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Vijayant Gupta, Edelweiss Group - Analyst [54]

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I mean, generally, is it the spread between spot --

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [55]

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Our expectation is from quarter on quarter. So obviously there might be a [qualitative] bigger margin this time with compared to last.

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Vijayant Gupta, Edelweiss Group - Analyst [56]

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Okay.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [57]

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And so we don't comment on it.

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Vijayant Gupta, Edelweiss Group - Analyst [58]

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Thanks a lot, sir. That's it for me.

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Operator [59]

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Rohit Ahuja, Bank of Baroda Capital.

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Rohit Ahuja, Bank of Baroda Capital Markets Limited - Analyst [60]

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Hi, sir. Thanks for the opportunity. I just wanted some clarity on the volumes at Dahej. You mentioned about 2.5 million tonne expansion which is going to be by March, April. So can you clarify by when do we expect this entire utilization to be -- for this -- our entire volumes to be consumed? And do you have any further plans at Dahej for unlocking capacity?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [61]

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So as you have seen, the plant has been operating at more than 100% capacity even in the past. So while this 2.5 million tonnes is added onto our capacity, as I said earlier also, it might be -- with certain ramp-up, there might be certain testing, commissioning, and all.

Due to that reason, there could be a window when we start making this capability available a few months after it has been stabilized. So if somebody approaches me today and asks for some volumes and there is a demand downstream market, we are not able to commit until this commissioning happens. You see, these are long-term large projects.

We have made some flexibility. So we do believe as we approach the second half of the next financial, depending on the downstream demand, we will be able to meet the requirement of the consumers up towards nameplate capacity.

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Rohit Ahuja, Bank of Baroda Capital Markets Limited - Analyst [62]

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And any further investment plan in the rate, sir?

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Unidentified Company Representative [63]

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Right now we are looking at some tanks -- call for additional tanks, we are looking at. Once the tank is certified, it will take around three years to be installed. After that, capacity will ramp up to even 19.5 MMTPA and [per] jetty is also likely to come up, which will give us a flexibility of having more cargoes being housed over there.

So I think this is the expansion plan we have unveiled. But it will take some time, three, four years [admitted]. And time where, I have said, the process is going on and let us see when it starts. And after that, I think we are hopeful that capacity will increase to 19.5 MMTPA from 17.5. This is the expansion plan for Dahej.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [64]

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So we would also like to sensitize the analysts and the investors that today Dahej carries almost 80% of the total LNG which comes to the country. So it is already running at a superefficient and other things. So now as (inaudible) said that we intend to invest in having another jetty and another storage tank to have more flexibility in our operations.

We do understand that there is a lot of clamor to come to Dahej because of its natural advantages, its low cost to brownfield expansion, the network of pipeline connectivity. So we would like to now invest in a manner so that more flexibility can be provided. And they don't necessarily add a lot of volume growth in that perspective.

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Rohit Ahuja, Bank of Baroda Capital Markets Limited - Analyst [65]

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So when you mentioned earlier that Bangladesh project may not take off, and probably there is a political turmoil in Sri Lanka as well, how do we expect the cash payouts to be going forward? Will you continue to maintain a very high dividend yield here? And is there a certain cap in terms of how much dividend you can pay?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [66]

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No. You see, if not Bangladesh is our terminal, we are looking at other takeoffs. So it's like we are also looking for some opportunity to have some upstream take outside India and having a stake in liquefaction terminals. That process is going on.

It is always a better proposition if they are then we are only going to -- it's the shareholders' money. We cannot invest in a place at any cost uniquely, whether there is a value to the shareholders coming up or not.

So likewise, if Bangladesh is not happening or may not happen, then we will look for some other opportunity, like we are looking at some stake in terminals outside India. And if gas is available at less than $6, then we will tie up immediately for that. And maybe in three, four years from now, it will be possible to bring LNG at a lower price. So that is the kind of thing we are looking at. So there are so many things going on.

Another opportunity we are looking at is having a terminal at East Coast, which we are also finalizing how we can work it out. Because East Coasters are not having any terminals and after coming up of this, if these were (inaudible) pipeline, there is connectivity [shows] are also a result and there is a possibility of having a terminal on the East Coast. So we are looking at opportunity at that point also. And these are two -- these are the things we are looking at apart from Bangladesh.

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Rohit Ahuja, Bank of Baroda Capital Markets Limited - Analyst [67]

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But East Coaster has then Dhamra; Dhamra coming up and Orissa. So where I think GAIL has already signed some contracts.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [68]

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Yes, there is still (inaudible). If you look at West Coast, there are so many terminals, but still there is this a [school] for all. So it is not as if --

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Unidentified Company Representative [69]

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It is a growing market. We are not in a situation market where connectivity to the pipeline will increase, so the demand will also increase.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [70]

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Demand will increase. It is likely that once we bring the gas in and start utilizing it, then only we need to look for the opportunities [of high consumption] and how LNG consumption can be increased in India. So once terminals will be set up, certainly something will happen and the news will be opening up for utilization of gas. So it will happen.

The year we had set up Dahej, everybody was just laughing at what will happen to Dahej? Nobody will take our LNG because gas was available at $1, $1.50, $2. So nobody expected that Dahej will be doing such a good business in the future.

Just like that only. We should not be fearing all those things because we know there is immense opportunity. People are trying to get the gas. The only thing is the infrastructure is not there. Pipelines are not there to carry the gas to the consumers. If you look at the city gas distribution project, this will certainly enhance the consumption of LNG to a great extent.

As [Hybra] said in the [street] commercial and other establishments will also develop. These are [in for scope] for the utilization of gas in India. But people are not getting the gas. So there are far-off areas where the gas is not available. So we have to look at the infrastructure. For [both sides], infrastructure is laid. Then the demand will automatically will ramp up.

So there is an opportunity for (inaudible), I mean, for any East Coaster, any other (multiple speakers) [survivor], [ABB DIC]. So there are so many [diverse] Dhamra and [inert]. So it is not as if our investment will go to waste. It takes time. It takes three, four years, but [delta], these all plants are stabilizing.

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Rohit Ahuja, Bank of Baroda Capital Markets Limited - Analyst [71]

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But any new investment you plan, sir --

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Operator [72]

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This is the operator. Mr. Ahuja, may we request you to come back in the queue for the follow-up, please.

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Rohit Ahuja, Bank of Baroda Capital Markets Limited - Analyst [73]

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Sure, sure. It is just a small follow-up to the earlier comment. So just any new terminal or any new investment will take at least four, five years to materialize in terms of significant cash outflow. And if when can we expect a decent dividend payout from [man]?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [74]

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It all depends, as we mentioned, that the follow-up projects we are looking at. So it depends on how many of them actually start moving. And depending on that, the Board and the management will take a view how much dividend can be distributed.

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Rohit Ahuja, Bank of Baroda Capital Markets Limited - Analyst [75]

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All right. Thanks for this, sir.

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Operator [76]

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(Operator Instructions) Aishwarya Agarwal, Reliance Mutual Fund.

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Aishwarya Agarwal, Reliance Mutual Fund - Analyst [77]

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Yes, good morning. And so my question is how is your interaction with the offtakers like iOCBC and GAIL? [Suggest] you both in terms of their inclination to get some capacity tie-up with Mundra? And for there to get this 2.5 million tonne of the Dahej that is coming up and which will be cheaper for them in terms of re-gas charges?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [78]

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As we mentioned in the beginning of the call when the question of utilization [Oftrek] mentioned also some, he had mentioned that we are in discussions with all the offtakers and new consumers to use our capacity. So that is [contingent] continues.

I would not like to comment that what is happening with Mundra, as we would like to refrain from doing that. But as for (inaudible) we continue to make sure that we use our capacity to the optimal level.

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Aishwarya Agarwal, Reliance Mutual Fund - Analyst [79]

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So if we assume that -- I mean, maybe that is again how once this capacity 2.5 million starts for (inaudible) or six months we will get clarity. But generally, we find that because of your lower re-gas charges, people are inclined to get Dahej capacity instead of going for any other one.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [80]

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[But it both starts] re-gas studies as well as the flexibility that we are able to offer. And the connectivity with pipelines -- remember the best thing which we have, which is not there with any other terminals. The multiplicity of pipeline networks and the flexibility as we mentioned. So all this is obviously attract the consumers and offtakers to Dahej. So we certainly believe that we should be able to do (inaudible) utilization in some time.

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Aishwarya Agarwal, Reliance Mutual Fund - Analyst [81]

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So basically what I am getting from you is it is inevitable that the customer will definitely come and take that capacity from us instead of going to any other person because of the inherent advantages.

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Pankaj Wadhwa, Petronet LNG Limited - SVP Marketing [82]

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On a pure commercial basis, we see no reason why people will not come to us.

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Aishwarya Agarwal, Reliance Mutual Fund - Analyst [83]

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And just one more last question is I understand that we are also planning to invest in the US LNG, maybe in the liquefaction terminal and all. So I just want to understand how meaningful the quantum of that investment potentially would be just there in your mind. And how you see its commerce in terms of commercial angles.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [84]

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Yes, I have already mentioned you that once we are getting the natural gas at wellhead price. And wellhead price in US is as much as minus $0.25. So if you are able to flow that kind of gas, even at $1 or $1.50, the landed cost in India will be less than $6.

So we are looking for that kind of gas which is available at cheaper rate in India. Because in India, the market is price-sensitive and consumption will be higher if we bring the gas at lower price. So we are looking at that kind of opportunity in the US.

So if that is available, why not to take that kind of thing? We are getting the gas around $9, $9.50 right now in India landed cost. If we get it at $6 also, it's much more cheaper, $3 less than what is right now available. So we are looking at that kind of opportunity.

And that can happen only when we have as stake in upstream. We have control over the wellhead price; we have control over the liquefaction terminal. Then we will be having everything at cost and there will not be any [airship] premium added to that kind of natural gas, which is now happening. People are charging so much a premium on that gas, which is available at [total] prices in the US.

So we are looking at very different things right now, and that will be historical if it happens. We will look at it. So we are looking in a very serious manner gas at wellhead price, which is very less anywhere, as I have told you. And some of the basins it is available at $0.25 minus because people there are looking for oil, shale oil, and not shale gas. And they are just turning over shale gas and just for -- so moving gas on the wellheads, they are paying 35 to the [$5 million of company].

So this is the kind of scenario in US. So we are looking at that kind of thing. If this happens, it's okay. If we have to bring in gas at $9, $10, there is no use. It is already available with GAIL if they are not able to sell in the Indian market.

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Aishwarya Agarwal, Reliance Mutual Fund - Analyst [85]

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Sure, that's a very good thought. But what could be the potential quantum of investment in these kind of projects?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [86]

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But preliminary is right now, so actually (multiple speakers) give new guidance.

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Unidentified Company Representative [87]

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If there is certainly something, we will give you the quantum of investment also. But we are capable of doing that.

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Aishwarya Agarwal, Reliance Mutual Fund - Analyst [88]

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Sure, sir. That is helpful. Thank you. Best of luck.

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Operator [89]

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Vinod Bansal, Franklin Templeton.

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Vinod Bansal, Franklin Templeton Investments - Analyst [90]

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Hi. For the Bangladesh project, do you have a timeline in mind after which you stop pursuing the project? Because it has been going along for a while without much conclusion; it is consuming management bandwidth. So do you have some sort of cut-off date after which you will not go ahead with it?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [91]

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There is no cut-off date, as such. But they will give some expression of interest sort of thing. But we have requested them to state [of their] orders. So this is a further project which was pursued at government-to-government level earlier. So we are looking at that.

And the same government has come in power again which was there earlier. We are expecting that they will give us this project. And certainly there has been a setback that there has been change in the place of energy terminal from Kutubdia Island to some Matarbari. So this is also again because we have already conducted that study over there. Now a new place; again, we have to see the feasibility in other studies.

So there is again a cost to us, but still, if it is awarded on a government-to-government basis, we do (technical difficulty) for that. And whether it will go further bidding process or not, again, this is a call which we have to take in the future. But right now, it has not been -- it has been given, or not given I have to say it, but we have to take a call on that. And that is pretty much --

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Vinod Bansal, Franklin Templeton Investments - Analyst [92]

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As you mentioned, a lot of things have changed in the meantime; other terminals have come up. So the commercial viability will always be in question even if it is on a government-to-government basis. So I was wondering, because of so many changes that are happening in the project, would you at some state say, look, it is not worth our time and we will move on to some new opportunities?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [93]

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I think we will not be making any investment which is not commercial in nature. So that is a fundamental we pursue. But given that, we should also sensitize you that we are looking at projects, both within the country and abroad. And this is one good opportunity.

Although they have FSRU, we have our understanding that they are not very happy with the performance. FSRU is not able to meet their baseload needs. And as [partnered] we have been advising sort of that they should go for a land-based terminal.

So to that extent, yes, there has been a setback; at least we were expecting it will happen in the manner we wanted. Now they have changed the location and they want an international competitive bidding. So we will have to wade through that and see how we are able to arrive at our intended objective. But yes, we can, maybe at the cost of repetition, say that we will pursue opportunities which are good commercial in character.

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Vinod Bansal, Franklin Templeton Investments - Analyst [94]

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Also, earlier, when you were pursuing it, we had spoken about some safety nets that we are sort of trying to secure -- [assure] some government to ensure that our investment remains viable. We -- the analysts can be made assured that you are not diluting the terms at which you will do the project? You will not achieve growth for the sake of it in Bangladesh. Is that sort of stays with you?

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Unidentified Company Representative [95]

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That's very true. We are not going to dilute any kind of terms and conditions which we have said earlier. This is a tolling model we are looking at. And our IRR is always around 16%. We were getting a good return from that project; why we should not go there? And you will also see some sovereign guarantees of the investment and all the returns. And as we do those kind of things, those business I think will be assured then only will go for investment.

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Vinod Bansal, Franklin Templeton Investments - Analyst [96]

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Right, which is another question. The sovereign guarantee remains a deal breaker. If it doesn't happen, you will not do the project?

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Unidentified Company Representative [97]

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Not do it. We are seeking a sovereign guarantee from Bangladesh government. And this is also part of our implementation agreement and terminal use agreement. We have already submitted the draft document to the government of Bangladesh. So it is up to them how they look at it.

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Vinod Bansal, Franklin Templeton Investments - Analyst [98]

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Lastly, on the US project, you just mentioned that gas is very cheap there. And if we can bring that to India, much cheaper than oil and LNG, etc. Is that a commodity call that you guys are taking that? Because it's a cheap commodity and therefore it is beneficial vis-à-vis oil-linked LNG and therefore should [cohort] it?

Is that the primary sort of thing as opposed to that's a call GAIL is better placed to buy back the gas and you can stay the gas import infrastructure company? Why go into commodity part of the business?

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Unidentified Company Representative [99]

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We are not going into a commodity part. What we mentioned is that we are looking at obtaining maybe a long-term tie-up of gas at a certain price or acquiring upstream assets, which assures that the commodity or the molecule price is fixed for as long [as 10 years]. So we are not taking a call on commodity, and our eventual aim is that we land with LNG delivered into (inaudible). So that happens and only we will go ahead with this project.

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Pankaj Wadhwa, Petronet LNG Limited - SVP Marketing [100]

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And please also remember that when we take such investment decisions, it is not without the support of GAIL and all of our other promoters. Because downstream market, they are the largest gas aggregators and it is (technical difficulty). It's not in isolation that project will be done by Petronet, but nobody has supported.

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Vinod Bansal, Franklin Templeton Investments - Analyst [101]

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Right. So you are looking for a fixed-price sourcing of gas in US? Is that the way to look at it?

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Unidentified Company Representative [102]

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Yes. This is what we are [currently], I would put it.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [103]

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And that will allow pay it off 15, 20 years. But we want the (multiple speakers)

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Vinod Bansal, Franklin Templeton Investments - Analyst [104]

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Do you know if there are contracts that have been signed like that?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [105]

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Pardon?

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Vinod Bansal, Franklin Templeton Investments - Analyst [106]

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Would you know if any of the contracts signed in US like that of fixed-price contract, independent of the benchmark prices there?

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Pankaj Wadhwa, Petronet LNG Limited - SVP Marketing [107]

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[I think they're evolving]. And the intent is, as you said, if we could get it in a particular range. Basically, the aim is to unlock the domestic gas market. We are bringing in volumes which can potentially maybe revive the power plant and other sensitive market who require cheaper price of gas.

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Vinod Bansal, Franklin Templeton Investments - Analyst [108]

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Okay. And lastly, if I may slip in one more. I know the question has been asked about dividends, which have been top-one priority for all investors. Can you still assure us some sort of a range of payout this year and next? Because clearly, you are not having any major CapEx plans, both Bangladesh and US, at least for two years? Can we see 70%/80% payout at least for these two years?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [109]

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No, actually, these things are -- the Board decides. Then only these can be sought. We cannot say right now how much they would [entail for detail]. And looking at the kind of budget we are going for, we have to see it. We cannot declare anything in advance what will be the payout for the next one year or two years. It depends upon the kind of budget we are looking at. And if there is a requirement of funds, then we will not give so much of dividend.

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Vinod Bansal, Franklin Templeton Investments - Analyst [110]

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Okay, fine. Thank you.

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Operator [111]

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Amit Shah, BNP Paribas.

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Amit Shah, BNP Paribas - Analyst [112]

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Hi, thank you, sir. Just two questions; most of them have been answered. So one is that is there a way you can share with us how much of US LNG came to you this quarter? Basically, can you give?

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Unidentified Company Representative [113]

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(inaudible). Because it is various user, so we don't rank it how much has come into it.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [114]

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But while last year I can tell you 50% of the gas was sold by GAIL outside India. So almost out of 80 cargoes, they have sold out around 40, 45 cargoes outside India. There is hardly any appetite for kind of 80 cargoes in India for that kind of priced -- that priced LNG.

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Amit Shah, BNP Paribas - Analyst [115]

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That is for Q2?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [116]

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No, I am not saying quarter-wise, because we don't have it in hand. But in the last year this -- I am telling you the --

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Unidentified Company Representative [117]

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Wait for the numbers because we have the annual numbers now. They are in the publishers, like it was MAC or IHS or (inaudible). And they will say what is landed into India not terminal like, but they will definitely break how much of the US and India has actually landed into India.

But as you are also aware, Amit, that there have been a lot of swaps which have been done. So meaning that US volume in indirect form may have landed at our terminals. Obviously we cannot calculate what that quantum is.

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Amit Shah, BNP Paribas - Analyst [118]

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Okay --

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Operator [119]

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Excuse me, this is the operator. Mr. Shah, may I request you to come back in the queue for a follow-up please. (Operator Instructions) [Mani Ghanta, Axxess Capital].

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Mani Ghanta, Axxess Capital Partners - Analyst [120]

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Thanks for taking my question. So earlier you mentioned that the Hazira expansion could go up to 19.5 MMTPA. So has the plant been confirmed and the CapEx is finalized for them? Or it is still in the planning stage? I missed that part.

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Unidentified Company Representative [121]

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No, regards the timing versus as far as the tank is considered. But as far as 2.5 MMTPA capacity (inaudible), this will completed by April, May. So that is there. But apart from that, if we have to install a tank also, then that may take some time of around three years. So after that, it will reach 19.5 MMTPA.

But that past CapEx plan, if you see, then it is already decided. And we are in [attendance] of this. It's around INR700 crores we are expecting to expand on the solution of [debt].

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Mani Ghanta, Axxess Capital Partners - Analyst [122]

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Okay, sir. If I can squeeze in one more question. The phase will be started and have already done for Bangladesh project you said for the Kutubdia Island, it is being shifted to another island now. That pass would have -- we would have to write off them. Would that be negligible or how much would that be if we will decide (multiple speakers).

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [123]

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Pass is not very high, so it is not very significant.

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Unidentified Company Representative [124]

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So for projects of such a large size, studies and various kind of investigations reports, they are not very significant in percentage terms.

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Mani Ghanta, Axxess Capital Partners - Analyst [125]

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Okay, sir. Thank you so much.

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Operator [126]

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Pinakin Parekh, JPMorgan.

As there is no response, we take the next question from the line of Pritesh Chheda, Lucky Investment Managers.

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Pritesh Chheda, Lucky Investment Managers Pvt Ltd - Analyst [127]

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Yes, sir. I missed your comment on the Dahej capacity expansion which is there getting streamlined in quarter four. So what kind of volumes on the expanded capacity or utilization of the expanded capacity should one consider for FY20?

Because you just mentioned that capacity is coming in quarter four and you will do the streamlining in quarter one and then you would give out your indications on whether to your clients. So we still didn't get what capacity utilization you want to do for FY20.

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Unidentified Company Representative [128]

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I think we mentioned clearly that once the plant has stabilized, we will be able to assess the demand downstream of the market. As of now, various potential consumers are approaching us and we are not able to give them slots or give them volumes for want of an exact commissioning of the plant.

So as soon as that happens, so in later part of the year, we do believe, given the downstream market demand, we should be able to achieve our nameplate capacity.

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Pritesh Chheda, Lucky Investment Managers Pvt Ltd - Analyst [129]

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So I should --

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Operator [130]

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Excuse me, this is the operator. Mr. Chheda --

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Pritesh Chheda, Lucky Investment Managers Pvt Ltd - Analyst [131]

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Sir, let me clarify on that question. I am not even asking a second question here. So should I really [display] that the expanded capacity once it gets streamlined can hit 100% utilization based on the planned feedback of planned business that you have admittedly in year one of operations?

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Unidentified Company Representative [132]

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So you see, again at the cost of repetition, I will say once the expanded operations are stabilized -- and please be sensitive to the fact that these are very large complex technical projects. And although our experience in the past has been that we have been able to hit the peak capacity very quickly, but that ramp-up or the technical parameters have to be met. Once it has been done from plant sites, there will be no issue in giving that capacity provided downstream market asks for it.

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Unidentified Company Representative [133]

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The kind of price we are charging for re-gas, anybody will be coming to us first. The Hazira is the first [reference] of anyone looking at the kind of re-gas tariff.

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Pritesh Chheda, Lucky Investment Managers Pvt Ltd - Analyst [134]

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Okay, thank you very much and all the best to you, sir. Thank you.

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Operator [135]

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Vikash Jain, CLSA.

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Vikash Jain, CLSA - Analyst [136]

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Sir, two questions regarding Kochi. Number one, if you could provide the likely volume of the three customers which you mentioned in the [panda] Mangalore section. And number two, any tariff cut would only happen once all of these customers are starting, maybe only towards the end of this -- maybe towards after June, July, or so. And those are the two questions, please.

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Unidentified Company Representative [137]

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So talking specifically, so as we mentioned, there are three large potential consumers in the Mangalore section: Mangalore Chemicals & Fertilizers, [Aishwarya Group] Company is ready to receive gas. They have converted their plant. As soon as gas reaches them through the pipeline, they should be able to start consuming. And our assessment is that given the size of the plant they have, they should be consuming about 0.7 million standard cubic meters of gas per day.

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Vikash Jain, CLSA - Analyst [138]

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Thank you.

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Unidentified Company Representative [139]

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Talking of MRPL and OMPL, both are ONGC Group companies. As I said, we still do not have an exact clarity about their state of readiness, although we have been in touch with those people. Our offtakers, primarily VLI, see BPCL, who are the end marketers. They are closely following it with them.

Still, our understanding is between the two of them, MRPL and OMPL, they should be able to take about 1.5 billion standard cubic meters of gas per day. So we are talking of 2 to 2.25 MMSCMD of gas consumption, with that commissioning of Mangalore pipeline, Mangalore section of the pipeline, in that coming few months.

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Vikash Jain, CLSA - Analyst [140]

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Okay. And a similar number is for DPCL, 2 to 2.5? So about 5 MMSCMD is what you expect when all these four guys are ready?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [141]

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That's true. Again, BPCL, they also need to do some modification there at the refinery end. As of now, our understanding is that they should be able to complete it by the current year end. So there will be a ramp-up, so yes, at that point of time, the market will have a potential to consume about 5 MMSCMD through [this food].

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Vikash Jain, CLSA - Analyst [142]

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And on the tariff cut, sir? Only after these guys ramp up, right, and not before that?

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [143]

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You see, we have mentioned it earlier also. One is if the market gets any support from the current tariff. If it shows that there is a requirement for further volumes, then it makes a sense for all of us.

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Vikash Jain, CLSA - Analyst [144]

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Thank you.

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Operator [145]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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VK Mishra, Petronet LNG Limited - Director of Finance and CFO [146]

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Thank you very much. And it has been your support that has been very helpful in our performance also. And kind of faith you have reposed in PLL that shows that even we have to come up to your expectations. And we always endeavor to be the best as far as possible. And in that direction, we are always making an effort.

And we will ensure that once an opportunity comes our way, it should give some value to the shareholders. Then only we should go for a project. Suppose there is a doubt or there is some apprehension whether we will have a good project, we will not venture in those kind of things. Because we never intend to just put our money on any kind of risk.

So this is the kind of scenario we are working at and the kind of Board we are having all good stakeholders and offtakers like GAIL, IOCL, ONGC, and BPCL. With the support of all these stakeholders, we are able -- we will be to perform better in the future. And we hope that we will have a good news in future as far as other projects are concerned. So that is our prime focus right now and we are looking at new projects.

And one more issue: we would like to find out that we are also participating in terms of [long] bidding for CGD. And we are looking at an opportunity to have some CGD business somewhere, at least one or two places in South India so that we can at least go for the utilization of our Kochi terminal because we are concerned with that.

And once we get some opportunity, we are also tying up with those who are already awarded CGD projects in South India. Because we have a capability of putting up some LCNG stations, supplying the LNG two tankers. Through that, even before the pipeline is laid, we can supply CNG, LNG, and PNG. So this is the kind of scenario we are working at for the utilization of Kochi terminal.

So that is all from my side. Thank you very much to all for giving us so much support. Thank you.

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Unidentified Company Representative [147]

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Thank you.

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Operator [148]

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Thank you very much.