Dahej prospects brighten as GAIL agrees take-or-pay

Vol 5, PW 11 (18 Jul 01) Midstream & Downstream

Petronet-LNG will soon have a firm 'Gas Sale & Purchase Agreement' in place with GAIL, Bharat Petroleum and Indian Oil for the offtake of 5m t/y of LNG from Dahej.

We learn that Petronet-LNG and three of its promoter companies have resolved a fundamental conflict that risked overturning the whole project: a refusal by GAIL, IOC and BPCL to accept 'take-or-pay' during the first three month "commissioning period" of the Dahej LNG import terminal between January 1st and March 31st in2004 (total: 7 cargoes of420,000 tonnes) against Petronet-LNG's insistence they must. We now learn GAIL, BPCL and IOC have accepted 'take-or-pay' during the "commissioning period" - but on one critical condition: that they pay domestic gas rates charged by ONGC and not the rate laid down in the SPA signed with RasGas on 31st July 1998.

ONGC charges GAIL 85% of a basket of internationally traded fuels. After March 2002, it can charge 100% ("import parity").

We also learn Petronet-LNG has shortened the "commissioning period" for Dahej by one month from January 1st to February 28th. This means GAIL will 'take-or-pay' at ONGC rates for two months only.

But after February 28th GAIL will have to pay the rates laid down in the SPA - and that depends on the erratic price of a barrel of crude! All this was agreed at a board meeting of directors from promoter companies on 30th June.