Vol 2, PW 24 (23 Dec 98) Midstream & Downstream

Tamil authorities are close to announcing the winner of an LNG tender promoted by the Tamil Industrial Development Corporation (TIDCO).

This report learns TIDCO formally conveyed its recommendation of the winner to Chief Minister N Karunanidhi at around 3pm on Thursday, 17 December. Originally expected on the 14th, it now emerges the reason for the delay was because of objections raised by the Tamil Nadu Electricity Board (TNEB) over TIDCOs criteria in evaluating the electricity tariff.

Petrowatch understands TIDCO has been following a particular formula to calculate the tariff. This is: Y=MX+C, where Y is the electricity tariff, X is the Japanese Crude Cocktail (JCC) index and C is the actual fuel price.

M is a constant that represents the value the bidder puts on aspects like terms of contract, risk, liquidation damages etc. This value is discretionary.

It is also the source of the problem. Petrowatch learns the Woodside and Petronas led consortia - both front runners - assumed exceptionally low values for M.

This made the product of M and X insignificant, rendering any rise or fall in the JCC irrelevant. Put simply, low oil prices (such as now) would make the electricity tariff of Woodside or Petronas expensive, but at TIDCO levels (JCC values over the last 20 years) they could be the most competitive.

In short, TNEB spotted a problem and asked TIDCO to resolve it. This was done after seeking clarification from three of the four consortia.

TNEBs intervention strengthens the chances of Shell and Enron, who until now, were widely believed to be out of the race.