Petronet LNG Limited (PETRONET) Q2 FY23 Earnings Concall Transcript

Petronet LNG Limited (NSE:PETRONET) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Mr. Hemang Khanna — Nomura — Analyst

Shri Vinod Kumar Mishra — Director (Finance)

Analysts:

Maulik Patel — Equirus — Analyst

Varatharajan Sivasankaran — Antique Limited — Analyst

Somaiah Valliyappan — Spark Capital — Analyst

Sabri Hazarika — Emkay Global Financial Services — Analyst

Mr. Debabrata Satpathy — General Manager (Finance and Accounts)

Puneet Gulati — HSBC — Analyst

Rakesh Vyas — HDFC Mutual Fund — Analyst

S Ramesh — Nirmal Bang Equities — Analyst

Manikantha Garre — Franklin Templeton India — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Petronet LNG Limited Q2 FY ’23 Earnings Call. [Operator Instructions]

I now hand the conference over to Mr. Hemang Khanna from Nomura. Thank you, and over to you.

Mr. Hemang Khanna — Nomura — Analyst

Thank you, Yashashvi. Good afternoon, and thank you, everyone, for taking the time to attend the post results conference call of Petronet LNG. We are privileged to have with us the senior management of Petronet LNG today, led by Mr. Vinod Kumar Mishra, Director Finance; Mr. Rakesh Chawla, Group General Manager and President, Finance and Accounts; Mr. Gyanendra Kumar Sharma, Chief General Manager and Vice President, Marketing; Mr. Vivek Mittal, Chief General Manager and Vice President, Marketing; Mr. Debabrata Satpathy, General Manager, Finance and Accounts; and Mr. Ashwani Agarwal, Manager Finance and Accounts.

We now hand over the floor to the management to make their opening remarks, post which we will open the floor for questions. Thank you, and over to you, sir.

Shri Vinod Kumar Mishra — Director (Finance)

Thank you very much. Very good morning to all of you. And first, I will just read out the highlights, then we can take the questions. So there has been highest ever turnover in this Q2 as compared to previous year turnover of same period or in the previous quarter. And the growth has been as compared to Q2 of the previous year, it has grown by 48%. And as compared to previous quarter, it has grown by 12%.

And PAT and PBT has also increased in current quarter as compared to the previous quarter by 6%. So now just I tell the highlights for this quarter. During the quarter ended 30th September, the has terminal process totaled 182 TBTU as against 1960 TBTU in the previous quarter and 225 TBTU in the corresponding quarter. And — in fact, also has processed 10 TBTU in the current quarter. as compared to 12 TBTU in the previous quarter and 15 TBTU in the corresponding quarter.

So total throughput in both the net has been in this quarter, 192 TBTU as against 108 TBTU in the previous quarter and 240 TBTU in the corresponding quarter. And company’s financial result has been, PBT has been 994 in the current quarter as against INR937 crores in the previous quarter and INR1,105 crores in the corresponding quarter. And the PAT has been INR744 crores in the current quarter as against INR701 crore in the previous quarter and INR823 crore in the corresponding quarter. The company has registered highest ever turnover of INR15,986 crores as against INR14,264 in the previous quarter and INR10,813 crores in the corresponding quarter.

Company reported highest ever turnover of INR30,250 crores in the first half of this financial year as against INR90,411 crores in the corresponding first half of 2021, ’22, registering a growth of 56%. Due to foreign exchange volatility, lease liability has an accounting impact of foreign exchange loss amounting to INR98 crores. As per the provision of relevant Indian accounting standards and Ind AS, considering the performance, the Board of Directors of company has approved a special interim dividend of INR seven per share. The company was able to achieve robust financial performance despite high energy prices due to optimization in its operation.

So now floor is open for questions. Thank you very much.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Maulik Patel from Equirus. Please go-ahead.

Maulik Patel — Equirus — Analyst

Yeah, thanks for the opportunity. A few questions. Can you just quantify your trading or inventory gain in this quarter?

Shri Vinod Kumar Mishra — Director (Finance)

Well, trading gain in this quarter has been INR273 crores an inventory valuation impact has been INR118 crores.

Maulik Patel — Equirus — Analyst

INR118 crores.

Shri Vinod Kumar Mishra — Director (Finance)

118.

Maulik Patel — Equirus — Analyst

So this is compared to close to around INR139 crores in the previous quarter of Q1 FY ’23?

Shri Vinod Kumar Mishra — Director (Finance)

It was in previous quarter, INR103 crore trading margin and INR110 crores inventory valuation to that. So total INR213 crores was there.

Maulik Patel — Equirus — Analyst

Okay. Got it. The second question is that if you can jump in your inventory on compared to the March. Does this indicate that there’s a lot of volumes lying in your store tens and offtakers are not taking that?.

Shri Vinod Kumar Mishra — Director (Finance)

Of course, we — it’s not that they are not taking it. They are taking it, but sometimes it happens that they are not able to update and some shutdowns are taking place in some of the industries. So all these things, in fact, sometimes slow down the send out, and that’s the reason sometimes it becomes like that.

Maulik Patel — Equirus — Analyst

Okay. Sir, last question. Gail has mentioned in the con call that next year onwards, monsoon onwards, that — terminal will be fully available. So in your assessment, what could be the potential loss to Petronet because Gail had a lot of volume or some cargoes during the monsoon to the Dahej and possibly at a Kochi also. And what — in your assessment, what could be that loss of the volume?

Shri Vinod Kumar Mishra — Director (Finance)

It’s not a loss to the volume. You see the capacity of the Dahej terminal. It is already booked to the extent of almost 16 MMTPA. If you look at all the volumes of RasGas 7.5 MMTPA and on mobile volume of 1.4 to five MMTPA. And then capacity booked by various operators to the extent of almost nine MMTPA. So that is the assurance that we are having utilization to the maximum possible limit means out of its 16.5 MMTPA total capacity is booked. So out of 17.5 MMTPA, 16.5% is booked.

So it doesn’t matter whether the Dahej terminal, Dahej terminal will be in operation for the entire year. Of course, it may affect to some extent. But as far as we are concerned, we are not that much affected because of the capacity booking on Dahej terminal to the extent of almost 16.5 MMTPA. So I think others may get affected because we have long-term contracts, which are tied up with the hedge. So it’s not a challenge, I think.

Maulik Patel — Equirus — Analyst

Okay. Sir, if you allow me the last question. Sir, any update on the potential investment we’re planning in biogas and the pet chem side?

Shri Vinod Kumar Mishra — Director (Finance)

Biogas is, of course, still we are exploring because certain issues have come up regarding allotnment of land in the state of Haryana. So those things are not sorted out. So we are not able to take up the projects in Haryana, initially four, five projects we were and easing to take up. But now unless this land issue is resolved, we will not be able to set up it. So it’s — we are taking up the Haryana government.

And probably, they are also operating — they are seeing the certain issues, and because there has to be a provision for a lot kind of land like us, they are resolving it in talk with them. So that is there. And Pat chem, as you have asked. So we are, in fact, going for this PDPP plant. And That, in fact, process is going on. And we are in the process of license selection. After completion of that process, will come out — come to know about the exact capex, which will be incurred. And then we will be taking up with the board.

Maulik Patel — Equirus — Analyst

So probably by the end of this financial year, do you expect to get an approval from the board or it will be?

Shri Vinod Kumar Mishra — Director (Finance)

Maybe it may cross this year, maybe March 23 can be.

Maulik Patel — Equirus — Analyst

Okay, great. Thank you and wish you all the bank to get.

Operator

Thank you. We have a next question from the line of Varatharajan Sivasankaran from Antique Limited. Please go-ahead.

Varatharajan Sivasankaran — Antique Limited — Analyst

Yeah thanks. If you can share the lease details on the impact of…

Operator

I’m sorry, sir, can you speak louder, please?

Varatharajan Sivasankaran — Antique Limited — Analyst

Can you hear me now?

Operator

Can you use the handset, please?

Varatharajan Sivasankaran — Antique Limited — Analyst

Is it better?.

Operator

Please go ahead..

Varatharajan Sivasankaran — Antique Limited — Analyst

Yes. The lease-related charges and impact our EBITDA?

Shri Vinod Kumar Mishra — Director (Finance)

You are asking about the lease impact, IndAS impact..

Varatharajan Sivasankaran — Antique Limited — Analyst

Yes, that’s right.

Shri Vinod Kumar Mishra — Director (Finance)

So it is to the extent of INR98 crores in this quarter. And it was INR124 crores in the previous quarter.

Varatharajan Sivasankaran — Antique Limited — Analyst

INR98 crores. And with this rupee depreciation, how do you expect this to change?

Shri Vinod Kumar Mishra — Director (Finance)

Actually, it has caused that part also. In fact, if you see there has been upward rise of this dollar against rupee. So it was somewhere around 79, 80 in the last quarter. It has gone to 82-plus — so it has impacted definitely. That’s why there is a loss to the extent of almost INR100 crores and restatement.

Varatharajan Sivasankaran — Antique Limited — Analyst

No, Is this 100 is something which we have to assume going forward or depreciate assuming INR882 kind of a number, would you expect this to go up further?

Shri Vinod Kumar Mishra — Director (Finance)

Dollar rate you are asking, 82,83?

Varatharajan Sivasankaran — Antique Limited — Analyst

Yes.

Shri Vinod Kumar Mishra — Director (Finance)

We cannot predict all these currency markets and…

Varatharajan Sivasankaran — Antique Limited — Analyst

No, no, we can predict our numbers. I’m just saying if I assume INR82 as a number, would this INR100 crores become INR105, 110 or will stay at closer to 100?

Shri Vinod Kumar Mishra — Director (Finance)

I can give you a ballpark number. If there is an increase of INR one in U.S. dollars, then it means roughly INR40 crores of loss…

Varatharajan Sivasankaran — Antique Limited — Analyst

My last question on great — last question on your East Coast terminal any at current…

Shri Vinod Kumar Mishra — Director (Finance)

Yes, it’s a great news. This is the right time you asked this question. Yesterday, we had a board meeting, and our Board has approved the investment approval for Gopalpur FSRU terminal. So total capex will be INR2,305 crores. And we are going ahead with this Gopalpur East Coast tender. So now all the term ships will be signed with Gopalpur Port Limited, and then we will work out all the packages for our project. Basically, three packages will be there in the project, which will be considered, and that is basically what is a jetty proposal. Jetty package will be there, then pipeline will be there because.

Gopalpur port roughly is 36 kilometers away from the trunkline of GAIL, which is Jagdishpur-Haldia Bokaro Pipeline. It is 36 kilometers from that pipeline, which is basically from Srikakulam-Angul pipeline. So it can be connected to that trunk line. So that pipeline package may be there. So life is and the topside facilities for LNG jetty will be there for which also third package will be there. So likewise, we are proceeding with this project. So this is a good news that Board has approved and now we are going ahead with Gopalpur LNG terminal.

Varatharajan Sivasankaran — Antique Limited — Analyst

Great I just wanted to check the INR3,300-odd crores like includes everything our pipeline or…

Shri Vinod Kumar Mishra — Director (Finance)

Everything in it. It is inclusive of all taxes and duties also.

Varatharajan Sivasankaran — Antique Limited — Analyst

And the capacity would be how much sir?

Shri Vinod Kumar Mishra — Director (Finance)

Four MMTPA capacity.

Varatharajan Sivasankaran — Antique Limited — Analyst

Thanks a lot. I’ll come back and join the queue. Thank you.

Operator

Thank you. We have a next question from the line of Somaiah Valliyappan from Spark Capital. Please go-ahead.

Somaiah Valliyappan — Spark Capital — Analyst

Thanks for the opportunity. My first question is on utilization. Last quarter, our overall utilization in the hedge was around 82%, any color — I mean, obviously, one impact could have been the highest spot LNG prices. Any other color that you would like to add, any impact on the long-term contracts? Anything from the Gazprom supply issue that impacted, and — but do you see anything — I mean, things getting better during rest of the year or the payor paid cost could probably compensate for this? That’s the first part. And second part is, if you could share what is the current level of utilization in Dahej that would be helpful.

Shri Vinod Kumar Mishra — Director (Finance)

So first is the utilization level. This time, utilization of Dahej has been 80% in the second quarter. And this was a little bit lower than 87% in the previous quarter, and 99% in the corresponding quarter on quarter. So utilization is low, and the reason is very obvious that price of spot allergy is very high. So spot cargoes, which used to come earlier are not coming. So that is the basic reason. Of course, the long-term LNG is coming. So that’s why it is still good as compared to other terminals where not much gas is coming. So that way, it is still better. But for the rest of the year, we — there’s a good news that prices have come down of spot LNG also.

Now it is in the range of $24 an ounce. So I think we are hoping that before — in the fourth quarter, at least, it will be way below $20, so maybe $50, $16, $15 to $20 price. So that will be affordable and then perhaps some more LNG will be coming to India and then utilization will further increase. But right now, of course, it’s a difficult situation because not much spot LNG is coming to India. So that is the reason. But of course, we are trying our hard to mitigate that particular loss, which we are incurring by not having more spot LNG by way of optimizing our LNG consumption, and in fact, we have been able to reduce our LNG consumption in our Kochi plant also, where we are able to optimize it through great power, and we are not using LNG for operation of GTUs.

So that way, we have saved a lot of LNG and power saving is to the extent of almost INR15 crores per month. So that’s why we are optimizing. We are saving LNG. Similarly, in case of, we are using more AFFO and saving energy to be used as fuel for the vessels. So that is also saving a lot of LNG. And whatever LNG, we are saving, optimizing that we are using for trading. And that’s the reason you can see that we have a trading gain of INR273 crores as compared to INR103 crores in the previous quarter. So we are trying to compensate whatever loss we are having in low capacity utilization through trading of LNG and two great extent we have done had this — they have not been a foreign exchange loss of INR98 crores, which we have incurred IndAS loss.

We would have caused the corresponding quarter profit also at it was INR823 crores in the corresponding quarter and INR100 crores, if it has not been there in this time, IndAS loss, then we would have got almost INR844 crore of profit. So still we are able to maintain. It’s a notional loss, but we have to show in the financials, we have shown it. But otherwise, physically, if you see, we have done extraordinary effort in not reducing our performance as compared to the corresponding quarter, we are still better than previous quarter. But we could have been even better had there been not much of this foreign exchange loss, which is a notion loss, and we have to book it.

Somaiah Valliyappan — Spark Capital — Analyst

Understood, sir. Just one follow-up on that. Any impact of the Gazprom supplies not being there to us?

Shri Vinod Kumar Mishra — Director (Finance)

Gas on supply, GAIL is too much affected, but we are also affected to the extent that some of the cargoes of Gazprom from were coming to Dahej. So those cargoes we are not able to get. So there has been some default by GAIL also because they could not bring the gas on cargoes, which we are scheduled for our very terminal. So there has been impact — but we are trying to compensate, as I’ve told you, to trading and through other things. So it has impacted, but GAIL is more impacted by Gazprom shortfall, which is there.

Somaiah Valliyappan — Spark Capital — Analyst

For us, would this be under a take-or-pay loss?

Shri Vinod Kumar Mishra — Director (Finance)

Yes, it is there. So that’s that part I could — I will answer now because what’s happening is that we have a calendar year as our take-or-pay obligation. So in third quarter of this year, we will book used to pay kind of thing. And whatever capacity is not utilized, then we will charge the use of charges from the offtakers. And as far as GAIL is concerned, you very well know that whatever they have defaulted Gazprom has defaulted, there is no mitigation in the contract. Hardly, there’s a liquidity damage to the extent of 20% of the price of gas. So that is hardly anything as compared to the spot LNG prices in the market. So that way GAIL is impacted, but they are still in talks with the Gazprom, if they could do something for them.

Somaiah Valliyappan — Spark Capital — Analyst

And sir, just one last question from my side. Update on capex for this year and next year, what you’re looking at. And also, if you could give some color on the progress on all our projects, be it the hedge expansion, the FSRU time line and PDP. How should we look at capex for the next couple of years?.

Shri Vinod Kumar Mishra — Director (Finance)

Capex, if you look at, as I told earlier also, I am again telling you that we have already constructing 2 times with a capex of INR1,246 crores at Dahej. So it is in progress, almost you can say that 38%, 39% of the progress is there. And Second project, which we are undertaking is third jetty at Dahej, which will be having a capex of INR1,700 crores. And then Dahej expansion, downfield expansion, we are doing five MMTPA from 17.5 MMTPA to 22.5 MMTPA. So that brownfield expansion is, in fact, will be costing around INR570 crores only. Whereas if you go for a greenfield project, LNG terminal, it will cost around INR5,500 crores, but it’s a low-hanging fruit.

So we are doing expansion with just capex of INR570 crores of five MMTPA capacity. So this will all be complete by the end of 2024 or beginning of 2025. So this is how we are proceeding in the, and then capex, you were asking for this year, it will be around INR1,250 crores. And next year, of course, will be there, but — so far, we can say that it will be almost more than double maybe INR3,000 crores we made each next year. So capex will increase because we have so many upcoming projects like I have told you that Gopalpur terminal is coming up.

So as and when the contract is awarded for the packages of Gopalpur LNG terminals, then capex will happen next year. So those things will come down. And apart from that, whatever PDHPP plant, we are going to have at Dahej, but that we will see next year what happens because the approval is yet to be obtained from both it may take next year, March or that will be there for approval of this project. But otherwise, capex, as I told you, this year, INR1,250 crores next year, maybe more than that, maybe INR2,500 crores to INR3,000 crores will be there. This is our expectation, and let us see how much happens in the next year.

Somaiah Valliyappan — Spark Capital — Analyst

Thank you.

Operator

We have our next question from the line of Sabri Hazarika from Emkay Global Financial Services. please go-ahead.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Yeah. Good afternoon, sir. So I have three questions. The first one is on this East Coast terminal. So have you booked any capacity? Or do you have any visibility of capacity booking for this?

Shri Vinod Kumar Mishra — Director (Finance)

See, it’s capacity booking is already, we are talking to so many people, including offtakers. And we will be able to do that something at least 30%, 40% will try to engage because what’s happening, that there is a mechanism of swap in gas, particularly. And we can — in fact, GAIL has already laid pipeline in this Haldia Dhamra Bokaro pipeline. So through this pipeline, we can optimize the utilization of terminals. And perhaps if somebody say GAIL or ICL has a customer in Orissa reason and they can take gas from our Gopalpur terminal through stuffing of the gas and can directly build to that customer from Dahej or Dabhol to Orissa on CST sale basis, and by taking volume from our terminal.

And in exchange, they will provide that volume in the age of ago to us. So this is a mechanism provided by CST Act also. So for gas industry only, there is no requirement of physical movement of goods from one state to another. If it is connected with a common carrier pipeline, and some volume is introduced in the pipeline. Then any customer can take that volume from any state. If it is put in one state, in another state, any customer can take it, and it will be deemed as if it has travel molecules have traveled to that state. And that is the mechanism, which is a good thing. It’s the open ex — so we hope that even if GAIL or IOCL or BPCL have any customer in that reason, they can take gas from Gopalpur, they will save in terms of transmission costs from Dahej or Dabhol to Eastern reason, which is costing almost $3 per mmBtu.

So we can optimize on that cost, and we can also share some margin with them. And they will also have their gas at a very cheap price landed at in Orissa or Eastern region. So this is how we are trying to optimize it and perhaps on East Coast, we are also trying to book some capacity. And also, we are trying to have SSLNG project to be launched over there because — we have seen that there are a lot of many mining industries, which are located in Orissa region. So there are a lot of dumpers, tippers and very heavy machineries used with diesel. So we can, in fact, use LNG as few for those particular dumpers and cranes and tippers. So I think those — that area is there SS LNG, small-scale LNG will be launched over there.

And apart from that, there are a lot many city gas distribution entities are coming up along this pipeline, Jagdishpur-Haldia, Bokaro-Dhamra pipeline. They will also need gas, which is — which will be provided to nearest terminal, which will be Gopalpur. And they can use that gas, if they want to, they can swap it with the government’s domestic gas at GAIL. If it is a city gas distribution company, they can take gas on there instead of bringing it from West Coast of India. So that way, it can be — utilization will be optimized, and we are hopeful that capacity booking is not an issue. It will be done properly.

Sabri Hazarika — Emkay Global Financial Services — Analyst

All right, sir. Second question is on the spot LNG that you — I mean it’s quite commendable that you are able to extract this much quantity. So what exactly is the guidance? If I assume that the hedge operates, let’s say, 85% kind of a capacity utilization, — so is it fair to assume that two to 2.5 TBTU of spot LNG, you would be able to like save and sell it on the spot market?

Shri Vinod Kumar Mishra — Director (Finance)

Spot market you are talking is spot LNG itself is so costly who will buy.

Sabri Hazarika — Emkay Global Financial Services — Analyst

I’m talking about the technical feasibility of like the savings that you have done by by using great power and like saving up on the internal consumption and then selling it in the spot market. So this — is there a ballpark rate? I mean, it’s a big delta right now for the the company, I guess. So I was just wondering…

Shri Vinod Kumar Mishra — Director (Finance)

We are selling this gas at the spot prices. almost — all we are selling on this gas exchange. Is there. So we are selling on that whatever prevailing prices.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Yes, because this has increased from one to two TBT from Q1 to Q2. So I was just wondering if — is there a ballpark rate? I mean, can we assume like…

Shri Vinod Kumar Mishra — Director (Finance)

Okay. The best will apply to your side.

Mr. Debabrata Satpathy — General Manager (Finance and Accounts)

Sabri, this is Debabrata am I audible..

Sabri Hazarika — Emkay Global Financial Services — Analyst

Yes. You’re audible.

Mr. Debabrata Satpathy — General Manager (Finance and Accounts)

Yes. So let us look at it from the financial numbers, you see the volumes have gone down from 87% to 80%. And at the same time, there is a commensurate increase in the trading margin right? Trading margin trading gain that has been done. So if we look at financial numbers, then as explained to the market that as long as the spot prices are high, the main reason of volume going down is spot prices basically. As long as the spot prices remain at that level, whatever efficiency will do, that efficiency will fit some trading margin. And once the spot prices come down to closer to a level of the long-term prices, then we would — then definitely the volume will increase and we would not need the trading gains.

So the message here is that this is not a one-off thing. It has been proved time and again since last six to eight quarters, that if one doesn’t happen, the other will happen because of the sheer volume and scale of the — and the positioning of the company and the commercial tie-ups. So we need to understand it financially. As far as you are asking about the technical details that we do not disclose. How much technically it will happen and how it came because the spot prices are also fluctuating. And depending on the spot prices, we also do more or less adding this. I hope that will answer your question.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Right. sir. Got it. And the third is basically the bookkeeping question. How much was the regas service income and the hedge volume — volumes in the hedge and IndAS impact on interest depreciation and expenditure these.

Mr. Debabrata Satpathy — General Manager (Finance and Accounts)

Yes, on volumes in Base was 13.9 TBTU. It is YTD. You have the last quarter’s number. YTD is 13.92% with you. And the regas income is INR438 crores, and as far as the IndAS figures, INR133 crores at gross margin level positive. And then INR eight crores at other expenses level positive. INR98 crores ForEx loss at other expenses level negative. And INR84 crores of depreciation and INR79 crores of finance ads.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Fair enough. Thank you so much and all the best.

Operator

Thank you. We have our next question from the line of Puneet from HSBC. please go-ahead.

Puneet Gulati — HSBC — Analyst

Yeah thank you so much for the opportunity and great effort. My first question is on the FSRU terminal, would you start the construction before tying up with the off-takers or after tying up with the offtakers and similarly on the other side from the sources of gas.

Shri Vinod Kumar Mishra — Director (Finance)

The construction will take off because it cannot wait. But in the meantime, before it is completed, we will work out all these issues, and we will book some capacity at least. And at least we will mitigate those risks, and that is sure. And perhaps there are not many customers coming up over there. The gas demand is, in fact, is there and perhaps we’ll be able to tie up before the completion of the terminal. So it’s not that — nowadays not always possible to have 100% booking like we had with the Dahej terminal. But at least to some extent, 30%, 40% rates you will try to tie up so that there is assurance that, that much capacity will be utilized.

So to your question, as you say, before tying up, that means we will have to wait long. So still, whatever things we have to do, it will take some time, six months, one year and more than that also. So we have to do that effort in between and tie up so that it is simultaneously, it is done, both the things. And by the time it is completed, capacity will be in place. Capacity be booked to some extent. And then we can further explore other areas where we can sell the gas to utilize the terminal.

Puneet Gulati — HSBC — Analyst

So you’re looking to tap 1.6 metric.

Shri Vinod Kumar Mishra — Director (Finance)

You can say yes.

Puneet Gulati — HSBC — Analyst

And that to on a long-term basis, right?. Any potential leads that you can share that you’re discussing with?

Shri Vinod Kumar Mishra — Director (Finance)

We would not like to share. Unless something happens, we cannot share those things. It’s all we create. As and when something happens, we will come to know..

Puneet Gulati — HSBC — Analyst

Okay. That’s. And when do you actually start placing orders for this?

Shri Vinod Kumar Mishra — Director (Finance)

Orders will be maybe in the next three, four, four months, five months, we will start placing orders because we have to sign term sheet first with Gopalpur Port Limited. And then a lot of things like site development and other infrastructure things are to be completed. And simultaneously, we will also try to float the tender for various packages, which I’ve just mentioned, including JT pipeline, topside facilities, all those things. So that part, we will do later. But at least four months in the four, five or six months, it may take.

Puneet Gulati — HSBC — Analyst

Okay. And is environment clearance that? Or is that yet to be done.

Shri Vinod Kumar Mishra — Director (Finance)

It has to be done. It has to be done. Environment care, we are now — the Board has approved it. So now we are going for environment players first, and all the clearances required from the Orissa government that we will see if in.

Puneet Gulati — HSBC — Analyst

But I would presume drag feasibility report is now complete..

Shri Vinod Kumar Mishra — Director (Finance)

That is over. That has been completed by Engineers India Limited. And the financial appraisal has been done by SBI Cap — and it has now found that it is a project which we can undertake. It is having good IRR, and it’s a good project, we should go. And that reason, which is in fact is deficient of the gas. Eastern region. So I think once the gas reaches the entire reason more and more revenues will come for supply, like I said, that the city gas distribution companies are coming. So small consumers will come through those CGD entities. So that way, it will further pick up.

Puneet Gulati — HSBC — Analyst

Okay. Understood. That’s really helpful. Secondly, on the take-or-pay contract, any acknowledgment from your customers that they will pay. And what’s happening in the current quarter? Have they paid for the capacity? Or will you book the shortage only in the December quarter?

Shri Vinod Kumar Mishra — Director (Finance)

No, it’s a shortage will be booked in December. That is the last quarter of the calendar year. in third quarter that we will book charges. So for whatever default has been committed, we have not booked any revenue until Q2. So now in the third quarter is a — and perhaps they have not paid last year user pay. That is true. But we are following up with all the customer to pay it and legacy what happens in next quarter..

Puneet Gulati — HSBC — Analyst

Okay that’s great that’s helpful thank you so much and wish you all the best.

Shri Vinod Kumar Mishra — Director (Finance)

Thank you.

Operator

Thank you. We have our next question from the line of Rakesh from HDFC Mutual Fund. Please go-ahead.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Thank you very much Sir your functionality and congratulations on delivering.

Operator

Sorry to interrupt but, Mr Rakesh volume is very low.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Okay. Is it better now?.

Operator

Yes.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Okay. Sir. Thank you for the opportunity. So I have three questions. One is short term and slightly too long term. So short term, if I look at your Dahej volumes, now for the first nine months of the calendar year, you probably would have done about 10.5 million, 10.7 million tonne of IBG, assuming fourth quarter is also ballparking the similar range, probably will end up about 14 million, maybe 15 million tonnes. So does that mean we’re going to book about one million tonnes or maybe 1.5 million tonne of takeover revenues in the coming quarter? Would that be ballpark the right math?.

Shri Vinod Kumar Mishra — Director (Finance)

I’m not confirming anything. But whatever default is there in long-term volumes, that will be — of course, we will account for in third quarter, default is there to some extent. So it’s not that it is not there. But everything will be known in the third quarter. And capacity utilization, I have told you, it is around 80% only. So that’s where you can just assume that whatever shortfall is there, that will be booked as the use or pay charges.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Got it. Got it. And sir, two more questions on the East Coast terminal Would we be competing with the Dhamra terminal, which probably would be in the — maybe about 300, 400 kilometers far away from each other. But does that mean that we’ll be competing for the same market — or will the markets for both the terminals be different? And an extension of that, if you can help us understand what is the demand potential on that part of the country from an LNG demand perspective?

Shri Vinod Kumar Mishra — Director (Finance)

Dhamra capacity is already booked. And perhaps many industry has already have already tied up with Dhamra terminal. So I think that is already booked — so now additional volume will be coming from our Gopalpur terminal. So this is how we are banking on. And as far as the industry is concerned, nearby industry, if you look at in Orissa region, the major anchor customers are there, which includes Nalco, Utkal and Vedanta, three projects are coming up. So they are the anchor customers who could be a potential customer for our terminal.

And Apart from that, I’ve told you that swapping of the gas and other thing mechanism will be adopted and SSLNG will also be there. So that way, we will be able to utilize almost 50%, 60% in next meet after commissioning in three, four years. So I think that will be good enough to at least sort, and we see that there is a potential increase in the consumption of gas in years to come. It’s only for the time being that consumption is low because of high LNG prices. But as and when these prices will be normal, the consumption will increase. And we hope that by 2025, ’26, it will be much, much higher. And therefore, demand will be there in that reason. And Vizag is also there, which is one of the potential customers.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Right. And one last question. Between FSRU and land bus terminal, if you can help us understand your choice. And also, my understanding is that currently, Germany is also bidding out for a lot of FSRUs to move away from the pipeline gas, which they have. That means they need to put in more LNG terminals. So do we see a possibility where availability of FSRU itself might be a challenge in the coming years? Or will that’s not an issue at all?

Shri Vinod Kumar Mishra — Director (Finance)

You’re right, because it’s not easy to get it. But of course, we will try to do that. And if we are able to find a good FSRU, then we will hire it, but we have a provision in this project that later on, we will convert this terminal to land-based terminal. But initially, we are going for FSRU terminals. So that way we have planned and perhaps maybe after five years, we may venture to set up this land-based terminal. So whatever facilities we have created, like we will be able to construct Jet for this project. All these infrastructure will be used for land-based terminal also.

So it’s a common thing. And with not much capex, we’ll be able to set up land-based terminal in future, based on the demand perspective in that region. But right now, we are going for FSRU, and we will see how much is the market is there and what is the price available, and if at all, we get a good price is whatever INR70,000, INR80,000 per day kind of FSRU you get dollars per day. Then we’ll have it if it is very costly, then perhaps it will not suit economics in the future.. And we’ll see what happens. But as of now, market is not good to assess whether this will continue like this. In future, prices will be lower and perhaps we will be able to hire FSRU. And there is no issue as such.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Understood, sir. And from a time line perspective, is it fair to say, assuming you take probably about a year to get all the approvals, environmental approvals and local approach, etc., and then you probably would need another three, four years to get or the time lines are a little shorter. If you can help us understand.

Shri Vinod Kumar Mishra — Director (Finance)

The time will be there for construction of terminal next year.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Okay understood thank you very much and all the best sir.

Shri Vinod Kumar Mishra — Director (Finance)

Thank you.

Operator

Thank you. We have a next question from the line of S Ramesh from Nirmal Bang Equities. please go-ahead.

S Ramesh — Nirmal Bang Equities — Analyst

Hello, good morning and thank you very much. So on the FSRU project, can help us understand what is the kind of volume required to generate the IRR expectation? And what is the tariff assumption there?

Shri Vinod Kumar Mishra — Director (Finance)

This is all actually — so you are asking a very internal thing. But of course, I’m telling you that we are having handsome IRR. And if IRR is good enough as per our this project appraisal and investment policies, we are having adequate IRR coming in this project. And capacity utilization, we are taking almost 50% 60% and that’s where we are working it out. And maybe after five years, it will be almost 70%, 80%. So this is how we are proceeding and we hope that it will be utilized to the maximum percentage. But at least it will go up to 80%.

S Ramesh — Nirmal Bang Equities — Analyst

Okay. And on the capital cost for the FSRU, when you talk about MS, rentals of $70,000, $80,000. So how is that cost built into this capital cost? Is it going to be capitalized on the lease? How will it work?

Shri Vinod Kumar Mishra — Director (Finance)

No, it’s not capitalized. It will be opex. Capitalization doesn’t include this FSRU hiring charges, this will be paid every year.

S Ramesh — Nirmal Bang Equities — Analyst

Fair enough. And on the volume growth prospects, say, for FY ’24, ’25, you assume your brownfield expansion will be done by, say, end of FY ’24 or beginning of FY ’25. So apart from the improvement from the current base is low, is there any other additional growth you expect, say, in FY ’24, ’25, as you mean the gas prices are reasonable as per the current trend?.

Shri Vinod Kumar Mishra — Director (Finance)

You are talking about Dahej terminals.

S Ramesh — Nirmal Bang Equities — Analyst

Yes, Dahej and Kochi combined in terms of the volume growth for your company over our FY ’24 and ’25..

Shri Vinod Kumar Mishra — Director (Finance)

Yes, it is the volume growth will be there because we are expanding the capacity. That’s why I’m telling you that even with the estimated growth. It should be — I think, right now, consumption level is around 163 MMSCMD. And we hope that it will increase to almost 200 around next three years, four years because by that time, all CGD entities will come up. And they will also be helping in growth of consumption of gas in the interior locations of the country.

So that will be a great thing because still some of the projects are not completed. CGD. They are under construction. And then I think when CGD will pick up, it will automatically take — it will be one of the highest consumer of gas in the future. Right now, it is second highest consuming almost 21% of the gas, the total kitty and after fertilizer. So I hope that after coming up of this city gas distribution project, gas consumption is bound to grow.

S Ramesh — Nirmal Bang Equities — Analyst

So just to understand the time line for the Dahej brownfield expansion. When do you think the first 2.5 million and the next 2.5 million tonnes will be real for operating.

Shri Vinod Kumar Mishra — Director (Finance)

It will be by end of ’24 or maximum and second phase because it is in two phases. So one is the end of ’24 2.5 MMTPA and balance is, say, in the next year, ’25 March as well, almost.

S Ramesh — Nirmal Bang Equities — Analyst

Okay. Fair enough. And finally, when you’re looking at your Dahej operation, there are two terminals, Mundra and — and then an LNG terminal. So is the LNG terminal likely to see completion this year? And how do you see the — terminal coming up because there is a certain amount of competitive intensity, much as you are competitive, how do you see these — the new terminal helps and — terminals taking shape in the next couple of years?.

Shri Vinod Kumar Mishra — Director (Finance)

But we have already booked capacity to the extent of almost 16.5 MMTPA. So there is no challenge to us as such. I think. Because if you look at all those things, it is not there with any other terminal as an — and other terminal has got a long-term capacity booking. It’s not there and has any terminals got some long-term volume tied up back to gas, it’s not there. So there is no competition as such with those customers.

But of course, as and then those have come, of course, they will also compete for the additional volume of spot LNG for which we will be completing and we are much, much ahead of anyone in terms of the things that we have already recovered our capex, and there is no — nothing to lose on that front. And that way, we can be completed. And additional volume will be, of course, the completion will be there. And another thing is that it’s not a terminal is coming then it will be utilized. It will be seeing whether that connect terminal is well connected with the pipeline network or not.

The is the most well-connected pipeline with the pipelines of the country. And as long as I know that at least four pipelines are connected to the paper and the terminal. So it’s the most feasible location for taking the gas. And our terminal, you are talking about but they are not so well connected, and it also makes a difference long term. So let us hope that we will compete with them for the addition of only long-term volume, we have security to that extent. So that way, we are well protected against any future terminals, which are something else.

Operator

Thank you. We have our next question from the line of Varatharajan Sankaran from Antique Limited. please go-ahead.

Varatharajan Sivasankaran — Antique Limited — Analyst

Thanks for the opportunity again. Sir, in this case of Gazprom volumes, is there scope for deal to pull up a force majeure kind of a class, does something like that exist in contracts, which can provide a escape?

Shri Vinod Kumar Mishra — Director (Finance)

This is for the GSP they have entered with the customer. We are talking about contract with Gazprom itself.

Varatharajan Sivasankaran — Antique Limited — Analyst

No, no, no. I’m talking about the contract with the offtaker. So is that to pull up saying that this is a force majeure kind of a situation. And hence, like compare take or pay, may not apply on this volume. Is that good for them to do that?

Shri Vinod Kumar Mishra — Director (Finance)

Yes, it is, I think, Sarcomenot seen the contract, but it is there, they can invoke the force majeure clouds, because there is a disruption in the supply facility, then our bold merger is involved. And the U.K. and Russia war is one of the events which — which can be seen as a disruption in the supply chain.

Varatharajan Sivasankaran — Antique Limited — Analyst

And anything else actually happening on this LNG outlets, which you had originally entered into a metro IOC and a couple of other players. So is that something which you are still progressing? Or is it on a hold at this point in time, given the economics?

Shri Vinod Kumar Mishra — Director (Finance)

It is taking place. But as you know, that we have already tied up with one of the OMC, and we are going for setting up four LNG stations in certain regions. We have already bought the LNG dispensing equipment and by setting up maybe in the next five, six months, you will see that they are installed. But it’s not in a big way, it’s going on. It will take some we understand that. Yes. But otherwise, other OMCs are also coming, like IOCL, BPCL and HPCL because they’re also bringing their own LNG station. So our effort is not only to have some of dispensing station we should own.

But we won’t that — anybody can set up the LNG station. If oil marketing companies are doing this good also because our objective is to supply it from our terminals. So that our utilization level increases. So who ever have the LNG station. If they take LNG from our Kochi terminal or from our Dahej terminals, that will also catch some of the revenue to us. So we are doing it because we want to connect with the customers, but may not be that we will go in a big way right now. It will be in a phased manner. And we’ll see the — whether this viability is there or not. 10, 15 stations after putting a 20 station, what is the visibility in that particular area.

If it is good, then we will expand further. So it’s — you can say, — it will take time. And simultaneously, other companies, OMCs will also open Ultimately, this will be cannibalizing their diesel or their fuel. So they would like to set up on their own. So we are not saying that we only have to set up this. So they are doing that means that they will do it and still we will be benefited out of it. But we will do to the extent possible. We have started doing it.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Manikantha Garre from Franklin Templeton India. please go-ahead.

Manikantha Garre — Franklin Templeton India — Analyst

All right yeah good afternoon sir about into the opportunity. So wanted to check now that you have taken the decision to go ahead with the Gopalpur FSRU, and you are doing other investments at Dahej and Kochi, are your all international scouting that you are doing earlier is of the data now.

Shri Vinod Kumar Mishra — Director (Finance)

There is no opportunity as such now. As and when something comes up, then we’ll — it and see the merit of the case. But right now, nothing is going on. as far as the international acquisition or kind of thing investment is concerned, that is not there right now..

Manikantha Garre — Franklin Templeton India — Analyst

Understood. I’m also asking on the section the context that Europe is looking to add a lot of LNG import capacity. So if you are finding any opportunities there? And if it is something that you’ll be thinking about in the future?

Shri Vinod Kumar Mishra — Director (Finance)

Europe is doing only for their own consumption for FSRU type of setup they are seeking. In fact, their objective is different. We are not receiving any kind of investment in Europe. It could be somewhere where horizon, these LNG suppliers are located to — it was there earlier, but now it is not there. So we cannot answer a hypothetical question because we don’t have anything right now with us. But as and when it comes, we will see the merit of the case and then go ahead. Otherwise, we will not.

Manikantha Garre — Franklin Templeton India — Analyst

Understood. But as of ease saying that there is nothing on the radar?

Shri Vinod Kumar Mishra — Director (Finance)

Nothing on the radar right now.

Manikantha Garre — Franklin Templeton India — Analyst

Yeah, that’s it from us. Thank you.

Shri Vinod Kumar Mishra — Director (Finance)

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for the day due to time content. I now hand over the call to Mr. Hemang Khanna for closing comments. Over to you.

Mr. Hemang Khanna — Nomura — Analyst

We would like to thank the management of Petronet LNG for taking time to answer all of the questions that were posed today. Thank you so much, sir, and thank you all of the participants. I wish you a very happy year ahead..

Shri Vinod Kumar Mishra — Director (Finance)

Thank you very much. Thanks to all of you.

Mr. Hemang Khanna — Nomura — Analyst

Thank you.

Operator

[Operator Closing Remarks]