Largest carbon credit transaction

Gujarat Flourochemicals has struck a very big deal, a bench mark kind of deal on the carbon credit front. Deepak Asher, VP-corporate finance at Gujarat Flourochemicals, says that their carbon credit contract could be worth over Rs 1,000 crore (Rs 10 billion).

Deepak Asher, VP-corporate finance at Gujarat Flourochemicals, says that their carbon credit contract could be worth over Rs 1,000 crore.

He adds that they are looking at much more than $3 million carbon credits per year. He also states that their carbon credit transaction is the largest in the market.

Excerpts from CNBC-TV18's exclusive interview with Deepak Asher:

We have been told that the carbon credit deal is a very big one, could you start by quantifying it and what potentially could the flow from here be over the next many years?

It's known to be one of the largest transactions in the carbon market as of date. Unfortunately, I will not be able to put a number on that because it is against the company's policy to discuss specific quantities or values. But from the perspective of the overall size of the transaction, it is the largest in the market today.

Would it be significant enough to materially influence your revenue stream over the next five years?

I think our entire foray in the carbon business is significant enough to materially influence our revenue flows for the coming years. This transaction is one of the several transactions we have entered into. We have a basket of about 15-20 buyers across different geographies and each of these contracts are fairly significant.

We would like to know about Noble Carbon Credit in specific, with whom you have struck this latest deal for three years, you have an arrangement for 2006-2012, can you take us through the modalities of that, because you have got fixed as well as flexible pricing, advance and balance payments for

It's a fairly innovative deal structure and as much as a part of the quantity, which we offer to sell to Noble Carbon Credits, is under a guaranteed delivery, which means that there is an ability to take penalties for non-delivery. But they also ensure that we get a fairly high fixed price for that part of the transaction.

There is another part of the transaction, which is on a flexible delivery basis, which means it's an offtake contract. We only take penalties if we do not deliver, we do not provide generation guarantees. This obviously gives us a price, which is lower than what I will get under a guaranteed contract.

But that price is linked to the European Union Allowances, EUA, price; it's a flexible price mechanism where I have a healthy floor and a possibility of sharing the upside. So I think, it's fairly innovative in the sense that it does not impose too much risk on us to generate the carbon credits and at the same time, it gives us a healthy revenue inflow.

Are we looking at $3 million carbon credits per year for the next 10 years? Is that the total or would you up that?

It is likely to be much larger than that, $3 million was purely an illustrative number that they have put on our PDD, Project Design Document. It was not indicative of the volumes in the future.

You will not mention the numbers, but just to get a sense of how big it could be; there is a ballpark number of Rs 1000 crore over the next many years doing the rounds, is that off the mark completely?

If one looks at the overall size of the carbon market and if one looks at the fact that carbon projects have been registered from 2006 to 2016, the overall revenues are likely to be much larger than that.

More than Rs 1000 crore?

That is right.

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