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FIs may seek Centre's help for DPC's LNG contracts

Indian financial institutions led by IDBI may seek Centre's help to hold discussions with governments of Oman, Abu Dhabi and Japan to facilitate concessions for procurement of Liquefied Natural Gas for US energy major Enron's Dabhol Power Company.

"In order to run the plant on LNG, at a tariff of about Rs 2.90 per unit, concessions from the LNG suppliers and export credit agencies are a must. After we draw our roadmap, we may request the Centre to usher bilateral talks with some governments as all of these are state-owned corporations," FI sources said in Bombay on Wednesday.

Oman LNG and AdGas, with whom DPC has a 20 year lock in fuel supply agreement, have respective governments as majority stakeholders who could be receptive to the Centre, they said.

"The Omani government has 51 per cent stake with Shell having 30 per cent interest in Oman LNG, while Abu Dabhi National Oil has 70 per cent stake with Japanese major Mitsui another 15 per cent in AdGas," sources said.

As per a proposal, FIs believe DPC's per unit price could be de-escalated from the current Rs 8 to Rs 2.90 per unit if the fuel suppliers slash their prices by five to ten per cent and charge no additional costs for stand still arrangements.

The government will also have to parley with its Japanese counterpart to convince state-owned export credit agency -- Japanese Bank of International Co-operation -- to reduce interest rate by 10 per cent.

"JBIC may have to be convinced to capitalise its entire interest during construction for phase-II," they added.

Sources said the FI committee led by senior IDBI official may also explore a possibility of asking the Centre to talk to the US and Belgian governments given the involvement of Exim Bank of USA and OND, the Belgian Exim Bank.

"This help from the Centre is part of various initiatives on its behalf for completion of the phase-II of the $3 billion project," they added.

Apart from facilitating the exit of sponsors, Enron, GE and Bechtel, the FIs are also supporting DPC's long term demand of a concessional duty of around 22.38 per cent on its LNG and offset of custom duties on LNG supply.

"Since DPC project preceded the mega power policy, duties payable on LNG import can be offset against duties and taxes paid during the project implementation," sources explained.

The lenders would also look upon an option of hiving off the $800 million LNG terminal from the project, they said.

"And as it stands today, the hiving off of the terminal will yield benefit only in the long term. It's viability on a stand alone basis will depend upon finding buyers of the surplus three million tonnes per annum fuel," sources added.

FIs have also calculated an additional capital investment of $400 million as a result of cost overruns during setting up of pipeline, storage tank and other related infrastructure.

Sources said lenders are of the opinion that it would take at least three-four years to develop, finance and construct the additional facilities.

"Finding new buyers, entering into LNG supply and shipping agreements for additional capacity will also take a lot of time," they added.

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