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NTPC does a flip-flop, agrees to pay margin for Reliance gas

NTPC does a flip-flop, agrees to pay margin for Reliance gas
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First Published: Thu, Jul 16 2009. 11 40 PM IST

High costs: The Reliance Industries rig in the Krishna-Godavari basin. The government has earmarked 2.67 mscmd of gas from KG D6 for NTPC, of which 2.06 mscmd is to go to the utility’s two Gujarat pla
High costs: The Reliance Industries rig in the Krishna-Godavari basin. The government has earmarked 2.67 mscmd of gas from KG D6 for NTPC, of which 2.06 mscmd is to go to the utility’s two Gujarat pla
Updated: Thu, Jul 16 2009. 11 40 PM IST
In a reversal of stand, state-owned NTPCLtd has now decided to sign an agreement to buy natural gas from Reliance Industries Ltd (RIL) at a price that includes a marketing margin.
The about-turn, which is subject to the Union government’s clearance, would push up the cost of gas supply by 4.04%. The decision was prompted by a fear that the power utility may forfeit its share of the scarce resource if the deal is not clinched immediately. NTPC has asked the power ministry for its permission to pay Mukesh Ambani-owned RIL a margin of 17 cents per million British thermal unit (mBtu) for the supply of 2.67 mscmd (million standard cu. m a day) of gas over the $4.2 (Rs204.54) per mBtu price set by the government for its projects other than Kawas and Gandhar.
“Post our meeting with the RIL representatives on 3 July, we have written them a letter stating our willingness to sign the GSPA (gas sale purchase agreement) if the government gives its approval on us paying the marketing margin,” said a top NTPC executive who declined to be identified. NTPC officials will be meeting RIL representatives on Friday to discuss the issue further.
High costs: The Reliance Industries rig in the Krishna-Godavari basin. The government has earmarked 2.67 mscmd of gas from KG D6 for NTPC, of which 2.06 mscmd is to go to the utility’s two Gujarat plants.
“We are examining NTPC’s proposal,” power secretary Harishankar Brahma said.
India’s largest power generation utility had earlier said it was not willing to pay the marketing margin to RIL for its gas from the D6 block in the Krishna-Godavari (KG) basin off the eastern coast of India, reported by Mint on 24 June.
“We are willing to sign the GSPA subject to government’s approval for Anta, Auraiya, Dadri and Faridabad plants. We have also asked RIL to amend the take-or-pay and supply clause,” said another NTPC executive who also wanted to remain unnamed due to the sensitive nature of the issue. NTPC has communicated its willingness to RIL in a letter dated 8 July. The take-or-pay clause means that even if NTPC does not take the contracted amount of gas, it will have to pay for it.
Mint had reported on 6 July on NTPC’s willingness to buy the RIL gas.
Questions emailed to a public relations agency that interacts with the media on RIL’s behalf remained unanswered at the time of writing this story.
The change in stance comes because if NTPC fails to secure this gas, the supply can be diverted to other power sector consumers outlined by the government’s gas utilization policy. The policy lists priority recipients as fertilizer, liquefied natural gas, petrochemical and power plants, followed by city gas distribution projects and refineries.
The government had allotted gas from RIL’s block to some NTPC plants and the plants of a few fertilizer and power companies. It has earmarked 2.67 mscmd of gas from KG D6 to NTPC, of which 2.06 mscmd is to go to the utility’s two Gujarat plants at Kawas and Gandhar. NTPC was earlier not keen on signing an agreement for this because it would have affected its position in the case it is fighting in the Bombay high court.
The case between NTPC and RIL in the Bombay high court dates back to December 2005 and has to do with the terms of gas supply to the utility’s two Gujarat plants for 17 years at a price of $2.34 per mBtu.
“For NTPC, marketing margin is not an issue because fuel is a pass through. However, it would increase the price for the procurer,” said Madanagopal R., an equity research analyst at Mumbai-based Centrum Broking Pvt. Ltd.
utpal.b@livemint.com
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First Published: Thu, Jul 16 2009. 11 40 PM IST