New Delhi: State-owned NTPC Ltd’s plans to source gas from Nigeria for its projects in India have faltered because of delays in finalizing an alliance with a local partner.
Scouting gas: A file photo of an NTPC power plant in New Delhi. The state-owned largest power generation company is looking for gas blocks overseas in an effort to find fuel to power its plants in India. Ramesh Pathania / Mint
“The Nigerian partner wanted an equity stake in the power projects to be set up by NTPC in lieu of getting the gas agreement signed. This over-insistence on nit-picking and delays due to it will make NTPC lose the deal,” said a person familiar with the matter who did not wish to be named.
NTPC, which had already signed a memorandum of understanding (MoU) with the Nigerian government, wanted to speed up efforts to secure the contract by partnering with a local firm as reported by Mint on 29 May.
India’s largest power generation company has been in talks with Nigerian authorities to finalize the deal that will ensure a supply of 3 million tonnes of gas a year for its projects in India. In return for the gas, NTPC was to build a 700MW gas-fired power plant and a 500MW coal-based plant in Nigeria, and renovate a 200MW unit at a 1,320MW plant. It had also offered to train around 30 Nigerian engineers and set up a training institute in the country.
The deal was delayed after a change of government in Nigeria last year.
Senior NTPC executives declined to name the Nigerian firm, citing commercial considerations.
“We being a public sector unit need to follow our systems and processes. We cannot go ahead and negotiate with one local player unilaterally. It is a sensitive country,” said a senior NTPC executive, who did not want to be named.
“Our memorandum of understanding (which was signed earlier with the local government) still stands and we are still trying to get the contract signed. We are trying to put in place some kind of a transparent mechanism to choose the partner (from) among many players.”
According to the guidelines laid down by the Central Vigilance Commission, the government body that monitors the financial transactions of state-owned firms, companies such as NTPC can enter into procurement contracts only through an open tendering process and not on the basis of negotiations.
“We have requested the Indian high commission in Nigeria to help with our efforts,” the NTPC executive added.
NTPC’s chairman and managing director R.S. Sharma is expected to leave shortly for Nigeria to get the local government’s support to push forward the deal.
In a fast changing environment for hydrocarbon opportunities, where Chinese firms have taken a lead over Indian companies, energy analysts blame NTPC’s poor risk appetite for delays. Although there have been several instances of violence against foreign investors in Nigeria, the country remains an attractive destination for Indian oil and gas companies such as ONGC Videsh Ltd.
“Given the political uncertainties in Africa, it could be important for NTPC to get all necessary checks in place so that it has adequate protection if anything goes wrong,” said Ravi Mahajan, a partner at audit and consulting firm Ernst and Young.
NTPC’s total gas requirement is 17 million cubic metres per day, or mcmd, but it has been able to source only 10.5mcmd. It is looking for gas blocks overseas in an effort to find fuel to power its plants in India with a total capacity of 3,955MW. In addition to this, it also has a 1,480MW gas-based plant through a joint venture.
Gas supply from Nigeria may require an estimated investment of $1.7 billion (Rs8,466 crore). This would include building an LNG (liquefied natural gas) liquefaction terminal in Nigeria and a regasification terminal in India as gas needs to be transported in liquid form and converted into gas on arrival. The company had cash reserves and surplus of around Rs44,393 crore on its books on 31 March.
Also Read our 29 May story“NTPC?to?tie up?with Nigerian?firm?to?ensure?smooth?gas?supply”-