More anger at 20-year contracts for Dahej R-LNG

Vol 12, PW 17 (29 Jan 09) Midstream & Downstream

Industrial users of gas are still seething over how GAIL, IOC and BPCL bulldozed them into signing 20-year contracts for Dahej R-LNG, starting January 2009.

“All the possible risks have been loaded on to us,â€‌ a bitter industrial buyer tells us. “The sellers have taken no business risks on themselves.

GAIL, IOC and BPCL have increased their gas marketing margins by almost 80% to about 20 cents/mmbtu but don’t want to absorb any risk.â€‌ Among the most important buyer-unfriendly terms is a 95% take-or-pay clause.

“Initially they wanted 100% but came down after we protested strongly,â€‌ he adds. Buyers see further insult in the 95% take-or-pay because the sellers capped their liability to 21 days.

Provisions to compensate buyers for failure to deliver gas are also “heavily loadedâ€‌ in the seller’s favour. How If the seller fails to deliver gas, he would compensate the buyer by paying the difference in the price of alternative gas.

But gas users reckon that in three years from now, no spot gas will be available in India. “If we can’t use alternative gas, then we’ll not get this difference,â€‌ adds a buyer.

“Instead we wanted to be paid the difference in price with naphtha which is more easily available, but they turned this down.â€‌ Another unfair term, we hear, is the definition of â€کForce Majeure’ when both sides are completely excused, without liability.

In the new contract â€کForce Majeure’ for sellers includes not only â€کacts of God’ such as earthquakes and other natural, unforeseen events but also the breakdown of machinery, equipment or tankers that transport LNG from Qatar. But for buyers, â€کForce Majeure’ includes only â€کacts of God.

’ “So if we have an unexpected machinery or equipment breakdown and can’t take R-LNG we are still forced to pay under the â€کtake-or-pay’ clause, but not the sellers.â€‌ GAIL, IOC and BPCL have also given no â€کfirm commitment’ to supply â€کmake-up’ gas, and say supplies will be “subject to availability.