GAIL in talks to acquire Dabhol’s 5 mtpa regasification terminal

GAIL in talks to acquire Dabhol’s 5 mtpa regasification terminal

Development comes in the backdrop of centre announcing a bailout plan for gas-based power projects

State-owned GAIL (India) Ltd has shown interest in buying the liquefied natural gas (LNG) terminal associated with the 1,967 megawatt Dabhol Power Station, operated by the Ratnagiri Gas and Power Pvt. Ltd (RGPPL), for about Rs.2,400 crore.

GAIL’s interest in the 5 million tonne per annum (mtpa) regasification terminal comes in the backdrop of the central government announcing a bailout plan for gas-based power projects and their lenders, under which LNG will be imported and the cash-strapped state power distribution firms extended financial support to buy electricity from gas-based power producers.

Under the plan, India plans to import 10 million metric standard cubic metres/day (mmscmd) of LNG, going up to 18 mmscmd after the monsoon.

A regasification terminal converts LNG to gas before passing it on to customers. India has four regasification terminals, including the one at Dabhol, with a total capacity of 25 mtpa.

GAIL’s interest in the terminal can be gauged from an April report by ratings agency ICRA, which states “the surplus regasification capacity available in the country right now is around 3 to 4.5 mtpa or 11-17 mmscmd. But, the country does not have the capacity to cater to the entire incremental demand, estimated at around 23 mmscmd, that will arise from the implementation of this scheme”.

Already, with a gas consumption of 51 billion cubic metres (bcm), India is the world’s 15th largest consumer and the fourth largest importer of LNG, sourcing 18 bcm.

While 1 mtpa of LNG is equivalent to 4 mmscmd, 1 bcm is equivalent to 2.8 mmscmd.

“In preliminary talks, GAIL has suggested its interest in acquiring the LNG terminal for around Rs.2,400 crore. However, the NTPC has not agreed to this valuation as the total loan and equity on the terminal part is to the tune of around Rs.4,500 crore. No decision has been taken on the issue. The terminal is operational,” said a person aware of the plan, on condition of anonymity.

An NTPC Ltd executive, who did not wish to be identified, said: “The project has a valuation of both assets—the power project and the LNG terminal. We are willing to let them (GAIL) acquire the LNG terminal at the right valuation.”

NTPC and GAIL own 28.91% each in the cash-strapped utility, the Maharashtra government has a 15.33% stake, and the rest is owned by banks and financial institutions, including the IDBI Bank Ltd, State Bank of India, ICICI Bank Ltd and Canara Bank.

GAIL chairman and managing director, B.C. Tripathi, as well as a spokesperson declined to comment on the organization’s interest in acquiring the terminal.

Lenders are looking to revive the Dabhol project and ensure it doesn’t become a bad loan on their books. The NTPC had earlier warned its parent, the power ministry, that its investment in Ratnagiri Gas and Power might have to be written off—a significant loss of money and face.

M.S. Raghavan, chairman and managing director, IDBI Bank, while maintaining that he was unaware of GAIL’s offer for the LNG terminal, said: “The idea is to separate the power generation from the LNG business, as they are two separate business activities, and then hive them off. The equity and debt portion of the separate entities have to be worked out. This was discussed recently. I expect that in the next month this plan will pick up and there may be some decision on the same.”

Dabhol Power Co. was conceived in the 1990s and promoted by the now-bankrupt US energy firm Enron Corp. The asset was transferred to the government in mid-2005, and the project was commissioned on 31 March 2010.

The company ran into trouble soon after it was set up, with the then Maharashtra government scrapping the power-purchase agreement signed by the previous government with Dabhol. Since then the firm has lurched from one crisis to another, with Maharashtra State Electricity Distribution Co. Ltd’s refusal to buy power generated by it adding to the woes.

Its name was changed to Ratnagiri Power in 2005.

Ratnagiri has been dipping into its insurance reserves to service its debt and avoid being classified as a non-performing asset. Fuel supply to the plant is an issue due to lower production of gas from Reliance Industries Ltd’s D6 block in the Krishna-Godavari basin.

Queries sent to the spokespersons of the SBI remained unanswered till going to press. Officials at Canara Bank could not be contacted. and ICICI Bank

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