PMT consortium close to term sheet with GAIL

Vol 9, PW 13 (06 Oct 05) Midstream & Downstream

Theres good news to report on the BG-led Panna, Mukta and Tapti consortiums long-drawn-out efforts to sign a contract with GAIL for the 6m cm/d it has been selling since April 2005.

We are very close to signing the term sheet, a source tells us. There is a change in GAILs attitude.

They dont seem so inflexible. Earlier they were insisting that the contract would be effective from the date it is signed.

Now they agree to have the contract run for a year from 1st April 2005 as originally set out with the oil secretary (Tripathi). On several other critical issues, GAIL is also more open to a compromise than before.

GAILs apparent change of heart is down to an acceptance of the reality that it is best to have a cordial relationship with the consortium in the interest of retaining the gas for a longer period. GAIL knows it can never afford LNG at present global prices.

It makes better business sense to be reasonable with us and get as much (cheap domestic) gas as possible. Especially since production is set to rise significantly: from 10m cm/d at all three fields today to an estimated 17.5m cm/d by mid-2007 following additional development.

With the term sheet close to signing, the contract is not far away either, even though only six more months remain for the contract period. The important thing is that we are making progress, we are told.

On some issues we need approvals from our management and on some issues GAIL has to get approval from its management. The consortiums problems with GAIL began when it sought a price increase in line with the PSC formula.

Under this formula the price was due for revision in February and March 2005 and the consortium started charging GAIL under the new ceiling price of $5.57 per mmbtu for Tapti gas and $5.73 per mmbtu for Panna and Mukta gas.