Private players want to partner GAIL for Dabhol LNG terminal bid

Private players want to partner GAIL for Dabhol LNG terminal bid

New Delhi: The Essar Group, Adani Group and UK’s BG Group have independently approached state-owned gas utility GAIL (India) Ltd seeking a partnership to acquire the liquefied natural gas, or LNG, terminal associated with the controversial Ratnagiri Gas and Power Project Ltd, or RGPPL, formerly known as the Dabhol Power Co.

“We have been approached by British Gas, Essar and Adani to partner with us for buying out the LNG terminal. While around Rs3,200 crore has been estimated as the completed cost of the terminal, we will not be interested in committing more than Rs2,500 crore," said a GAIL executive who did not wish to be named.

Calls and emails to Adani didn’t elicit a response on Wednesday, a public holiday in parts of the country on account of Diwali. A BG spokesperson said the company wouldn’t respond because “this appears to be market speculation and we don’t comment on such speculation." A spokesperson for Essar declined comment on the issue because it was “speculative", but said that the group was constantly on the lookout for opportunities in the areas in which it operates.

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The overtures by these companies to the gas utility come in the wake of the government, in a significant departure from its earlier stand of not inviting private sector participation, considering a proposal which, if approved, would call for bids for the terminal. The proposal, one of several options, has been forwarded to the empowered group of ministers (eGoM) on Dabhol project by a committee of secretaries (CoS), a group of senior bureaucrats, after a 30 September meeting chaired by the cabinet secretary, as reported by Mint on 28 October.

The government wants to ensure that the LNG terminal continues to function in tandem with the power project even after it is sold or leased. The two were originally conceived as part of one integrated project. NTPC Ltd, India’s largest power generating utility and a significant shareholder in RGPPL, however, reiterated that it is opposed to any move to spin off the LNG terminal.

“We maintain our earlier stand of opposing any stake sale. RGPPL is an integrated power-cum-LNG project and has been designed in a manner that will bring synergy to the operations," said a top NTPC official who didn’t wish to be named.

NTPC and GAIL hold a 28.33% stake each in RGPPL. The rest is held by Maharashtra State Electricity Board (15%), and several banks.

The LNG terminal is part of the integrated power project with a capacity of 2,150MW that is being derated to 1,844MW. The project is fuelled by gas, which is transported typically by ship and always in liquid form. It needs to be converted into a liquid before shipping and reconverted into gas when it arrives at the terminal. The terminal has a capacity of 1.2 million tonnes per annum (mtpa) and this is to be raised to 5mtpa.

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The terminal has caught the private sector’s attention because firms need one such to source LNG supplies for gas-based projects. India has only two operational LNG regasification terminals and both are located in Gujarat. One is owned by Petronet LNG and the other by Shell India. Other terminals that are in the pipeline include one each in Kochi and Mangalore.

“India is a gas-starved nation. In the current market dynamics, investing in an LNG terminal would not make much sense with naphtha (an alternative fuel) prices at $10 per million British thermal units, or mbtu, as compared to $15 per mbtu for gas. However, from a long term perspective it makes sense as the gas prices will be linked to market prices and then the terminal will be a significant revenue earner," said Prayesh Jain, an analyst at equity research firm India Infoline Ltd.

The project cost was fixed at Rs10,038 crore at the time of the asset transfer to the government in mid-2005 and this included Rs870 crore as completion cost and Rs683 crore as interest charges during construction.

The completion cost and interest charges have since risen to Rs2,364 crore and Rs2,413 crore, respectively.