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The government may allow GAIL India and NTPC, to keep 5-million tonnes per annum (mtpa) liquefied natural gas (LNG) terminal as an integral part of the 1,850 mw the Ratnagiri Gas & Power Pvt Ltd (RGPPL, erstwhile Dabhol Power) power project. It may accept their demand to treat the terminal as a profit centre on the condition that about 2.9 mtpa surplus capacity of the terminal would be used by third parties for a fee. NTPC and GAIL had threatened to walk out from the project if the terminal was hived off and sold to a third party. The change in the government’s position has come due to a strong stand taken by both NTPC and GAIL. In fact, the two promoters threatened to divest out of the project if government went ahead with its plan on hiving off the LNG terminal.

The LNG plant has a total capacity of 5 mtpa, while the power project would require a maximum of 2.1 mtpa at any given point of time. The balance capacity would be available for use by third parties. Earlier, the government had proposed to hive off this terminal to a third party so that funds from the sale could be used for wiping off the company’s rising debt obligation.

It is understood that the government would also consider whether a separate subsidiary company should be floated for commercially running the LNG unit. The RGPPL board had considered this option earlier.

NTPC and Gail, who have the right of first refusal on the sale of the terminal, believe that the LNG plant is an integral part of the power project and selling it off would upset the revenue structures for the project. The revival cost of the project has escalated and the government wants the promoters to put in more equity to salvage the project. From less than Rs 10,000 crore, the completion cost of the 2,150 mw power project has now crossed over Rs 20,000 crore.

The new development comes at a time when the Maharashtra-based power project is struggling to bring the plant to run at full capacity. In fact, the capacity of the power project has already been stripped down to 1,844 mw from the proposed 2,150 mw due to technical reasons. The plant also encountered turbine failure in one of its units that has resulted in delays and it still faces problems over long term supply of gas to run the project. The project has huge debt obligation and its completion cost has also risen sharply from earlier estimates. Lenders to the power project have a total exposure of almost Rs 7,000 crore in the project.

RGPPL is a special purpose vehicle set up by NTPC and Gail which acquired the assets of Dabhol power project for Rs 8,485 crore in 2005. This was financed by term loans of Rs 7,011 crore and equity of Rs 1,474 crore, out of total equity contribution of Rs 1,500 crore.

Courtsey- Economic Times