NTPC in detailed negotiations with bidders

Vol 7, PW 19 (03 Dec 03) Midstream & Downstream

NTPC is in final talks with bidders for the supply of 3m t/y gas to fuel the expansion of its Kawas and Gandhar power stations in Gujarat.

LNG supplier Petronas was the first to hold meetings in Delhi from 17th November, followed by natural gas supplier Reliance and LNG regassifier Petronet-LNG. Shell is meeting NTPC on 2nd and 3rd December and Total affiliate Yemen LNG after that.

On 28th November, Indias Business Line newspaper reported that the Shell and Yemen LNG bids could be in trouble because of their unwillingness to provide back-up guarantees from their parent companies as demanded by NTPC. Contacted by PETROWATCH, both companies dismiss the report as rumours but privately sources tell us NTPCs insistence on parent company guarantees is out of step with global practice.

For every energy multinational, the subsidiary in each country has to bear its own burden, we are told. When Petronet-LNG signed a GSPA with RasGas, it did not get a parent company guarantees from either ExxonMobil or the Qatar government.

According to one source, NTPCs insistence on a parent company guarantee, is reminiscent of a typical bureaucratic government company that does not trust anybody. One source adds that LNG suppliers could insist on NTPC providing them a payment guarantee from the government of India for $10bn, the approximate value of the LNG that NTPC will buy over 17-years.

Petronas, Reliance and Petronet-LNG are not concerned with the issue of parent company guarantees. Petronas and Reliance are bidding through their parent companies, while Petronet-LNG is supported by the balance sheet of its four healthy promoters: Indian Oil, GAIL, ONGC and Bharat Petroleum.

Other issues also need to be resolved. For instance, Petronas is bidding through its parent company but is unwilling to give a performance guarantee.

A lot of positions are taken just for bargaining, says a source. When we sit down to negotiate things could out different.