New Delhi: In a softening of its stand, state-owned NTPC Ltd is willing to buy natural gas from Mukesh Ambani-led Reliance Industries Ltd (RIL) at the price set by the government, according to a top executive at the utility. NTPC is ready to look at some of the issues it raised over the gas sale purchase agreement, or GSPA, with Reliance.
The country’s largest power producer is willing to sign an agreement with RIL to purchase 2.67 million standard cu. m of gas per day (mscmd) at the $4.2 (Rs201.60) per million British thermal unit (mBtu) price set by the government, said the executive, who didn’t want to be named because of the sensitive nature of the issue.
After a meeting with RIL representatives on Friday, NTPC is ready to forgo the marketing margin provided it is asked by the government to do so, and will discuss the take-or-pay clause with power procurers. RIL wants NTPC to pay a marketing margin of 17 cents per mBtu over and above the price of $4.20 per mBtu.
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.
NTPC is trying to secure 2.67 mscmd of gas because if it fails to do so, the supply can be diverted to other power sector consumers outlined by the Union government’s gas utilization policy. The policy lists priority gas recipients as existing fertilizer, liquefied natural gas, petrochemical and power plants, followed by city gas distribution projects and refineries.
“In the meeting, they (RIL) kept their point, which did not convince us very much. However, we will have to take a view as we have to protect our 2.67 mscmd,” the NTPC executive said. “We do not want to give it away. Simultaneously, we also have to protect our 12 mscmd of gas to Kawas and Gandhar projects, for which we are fighting a case with RIL in the Bombay high court.”
The decision to allocate 18 mscmd of gas produced by RIL at its D6 block in the Krishna-Godavari basin block to power-generating firms, including NTPC, was made by a five-member empowered group of ministers, headed by then acting finance minister Pranab Mukherjee, on 9 April. RIL has signed GSPAs with all domestic power project developers, except NTPC, for the allocation of 18 mscmd of gas.
“We are yet to take a final decision. The point of marketing margin has to be confirmed by the government. If we are asked, we will pay it. We may sign GSPA without prejudice to our case. This has nothing to do with our case with RIL. We will shortly hold a meeting with the directors to firm up our view,” the NTPC executive added. An RIL spokesperson hadn’t responded to queries emailed by Mint till late Sunday evening.
“If NTPC signs the GSPA with RIL, it will secure gas, which is a scarce commodity today. NTPC anyway has an assured return on equity and fuel costs are a pass-through for it,” said Girish Solanki, a Mumbai-based research analyst at Angel Broking Ltd.
NTPC and RIL are engaged in a legal battle in the Bombay high court over the price at which gas will be supplied to fuel the expansion efforts at two NTPC plants at Kawas and Gandhar. While NTPC wants gas at $2.34 per mBtu for 17 years, RIL wants to sell at the $4.2 per mBtu price set by the government.
These expansion efforts have since been put on hold, but the high court has temporarily allowed RIL to sell gas from its KG basin finds.
RIL has expressed reservations against changes in GSPA: “GSPA forwarded to NTPC is in the form identical to and applicable uniformly to all customers of KG-D6 gas and has already been signed on the same basis with 15 fertilizer units and 15 power units. As such, we would not be in a position to accept changes to the draft as it would create serious issues of contract administration for us.”
“We never said that we will not sign GSPA. We only want the points to be sorted out,” the NTPC executive said.