New Delhi: Adani Energy Ltd, which is part of the Adani group that has interests in oil and ports, has been slapped with legal proceedings claiming $100 million (Rs429 crore) in losses, way in excess of the unit’s revenue, by an arm of Malaysia’s state oil and gas firm Petroliam Nasional Berhad (or Petronas), for violating an agreement to buy and sell liquefied natural gas, or LNG.
This is according to information available in the draft red herring prospectus filed by Adani Power Ltd, which produces and distributes power, and is another Adani group firm. Such filings are made to stock market regulator Sebi by companies wishing to make an initial public offering of shares. Adani Power filed its prospectus on 30 April.
When contacted over phone, an Adani spokesperson said the group would not like to comment on the issue. An email sent to the Indian office of Petronas remained unanswered.
The Malaysian unit, Asean LNG Trading Co. Ltd, has initiated legal action because Adani Energy went back on a contract to import LNG after it failed to muster space at a cargo terminal in Gujarat last year to take delivery of the product. Asean LNG then went ahead and initiated arbitration proceedings against the Adani company in the London Court of International Arbitration in January, claiming damages for failure to adhere to the agreement.
Adani Energy ended March 2008 with a net profit of Rs10 crore on revenues of Rs178 crore.
Typically, firms go to arbitration courts when they are unable to resolve the matter through mutual talks. Most international contracts have a clause that states which court all disputes will be taken to, should differences arise, lawyers say.
Gujarat has two LNG terminals, at Dahej and Hazira, operated by Petronet LNG Ltd and Shell Corp., respectively.
An Adani group official, who is familiar with the agreement between the two companies, said the group was hopeful of convincing one of the two to allot space for the cargo, but could not do so. The imported gas “was cheaper by as much as 50 cents to a dollar compared to the prevailing market rate at that time. But with the deal not happening, things went awry,” the same official added. This person cannot be named as he is not authorized to talk about this agreement.
A senior official at the Shell-operated port in Hazira confirmed that Adani Energy did approach them to import LNG, but that the port could not help them because of non-availability of capacity. He didn’t want to be identified. Petronet LNG officials were not available for comment.
According to the prospectus, Adani Energy is engaged in the production, supply, transportation and distribution of all forms of conventional and non-conventional energy. In the offer document, Adani said the purchase agreement with Asean LNG signed in August 2006 was valid for three years. Details of each transaction between Asean LNG and Adani were through “confirmation notices”, agreeing on the details and price of fuel which would be finalized through a “delivery notice” ahead of loading and shipping, the company added in its filing.
The confirmation notices between the two companies were signed on 12 March 2007. But, Adani claims in its prospectus that it did not sign the “delivery notice” as it could not get the terminal.
Mint could not ascertain whether Asean LNG had agreed to let Adani forgo the contract for a penalty fee. It is also not clear whether there were any stages to the dispute before it ended up in the London court.
India’s rapidly expanding economy is creating huge demand for fuel, including LNG. A study by the country’s apex policy planning agency Planning Commission has estimated that for India to sustain a growth of 8-9% in gross domestic product till 2031-32, it has to increase its primary energy supply fourfold.
Rasul Bailay contributed to this story.