The two leading stakeholders in the Ratnagiri Gas and Power Project Ltd (RGPPL), public-sector firms GAIL India Ltd and NTPC Ltd, are fighting to buy out the liquefied natural gas (LNG) re-gasification terminal being developed as part of the project, which was formerly—and is still popularly—known as Dabhol.
While NTPC and GAIL hold stakes of 28.33% each in the project, the Maharashtra State Electricity Board (MSEB) owns 15% and lender banks (IDBI Ltd, State Bank of India, ICICI Bank and Canara Bank) have minority stakes.
GAIL, India’s leading gas pipeline company, made its intent clear in Mumbai on 24 March, when its chairman and managing director U.D. Chaubey said that as the leading stakeholder, it had the first right of refusal on the LNG terminal and that the company’s board would be meeting this week to consider the acquisition proposal.
Meanwhile, NTPC, India’s largest power-generation company, has also thrown its hat in the ring. This could mark the beginning of a long tussle between two equal stakeholders.
The acquisition, if it does come through, is a good value proposition for both firms.
GAIL does not have adequate supplies of gas to feed into its gas distribution infrastructure in the country. It imports the gas, but is dependent on Petronet LNG, in which it has a 12.5% stake, to re-gasify the imports. Re-gasification is the process of converting LNG—transported in liquid form as it takes up much less space—back into the gaseous state.
NTPC is in the process of closing long-term gas supply contracts abroad. It will need an LNG terminal when the gas imports reach India.
This development comes close on the heels of the decision of the empowered group of ministers on Dabhol to set up a restructuring committee headed by banking secretary Vinod Rai.
The restructuring committee will decide how the cost escalation will be shared among the various stake holders of RGPPL. One of the options before the panel is to hive off the LNG terminal, for which there are several takers, and use the proceeds to bridge the escalation cost on the project.
The project cost has increased by Rs2,594 crore to Rs12,897 crore.
“As the lenders for RGPPL want to hive off the LNG terminal, we want NTPC to have the right of first refusal. We want the re-gasification terminal as it fits in with our plans of bringing LNG from overseas and re-gasifying it here for being used as a fuel for our own gas power projects,” said a senior NTPC executive who did not wish to be identified.
India only has two LNG regasification terminals. Both are located in Gujarat and are owned by Petronet LNG and Shell India.
The Dabhol terminal, which is expected to be completed any time between April and May, is being built at a total investment of around Rs3,000 crore. “As the project is an integrated project, the same equity structure is applicable to the LNG terminal as well. We already have a 28.33% stake in the project and plan to buy out the others’ stakes in the LNG terminal,” the executive added.
The Dabhol terminal will initially have a capacity of 1.2 million tonnes per annum (mtpa), which will be increased to 5mtpa by 2010.
The power major’s bid to acquire the Ratnagiri facility is not surprising given its emerging global strategy. It is very close to finalizing the supply of LNG from Nigeria, which may require an estimated investment of $1.7 billion (Rs7,480 crore). This would include building an LNG liquefaction terminal in Nigeria and setting up a re-gasification terminal in India.
Under the agreement, NTPC will get a 3mtpa gas block in lieu of it setting up power projects in the African nation. The power generation major will be able to procure gas at a far lower price compared with the spot price of $8 to $10 per million British thermal unit (mmbtu) in the international market.
After investments in gas block, liquefaction, re-gasification and shipping, the price of gas may work out to be between $3 and $4 per mmbtu. In the normal course, NTPC would have had to fork out $700 million to set up a greenfield re-gasification facility in India.
If its acquisition plan works out, then the firm will acquire this facility for Rs2,150 crore, effecting a saving of 32%