NTPC's fuel-for-power pact with Nigeria: A lost case?

NTPC seems to be unwavering in its quest to gain access to cheaper LNG from Nigeria, even though authorities in the African country are, by all indications, trying to wriggle out of the fuel-for-power deal. This extraordinary determination comes in the background of a Cabinet reshuffle in the African country, in late 2008, that resulted in the substitution of the two main interlocutors-- the minister of state for power and minister of state for gas-- negotiating the deal with the power major.

NTPC had, in May 2007, signed a memorandum of understanding (MoU) with Nigeria that envisaged energy cooperation between the two nations. As per the deal, Nigeria had agreed to provide at least 3 MTPA of liquefied natural gas (LNG), while NTPC was to set up, as a quid pro quo, a 700 MW gas-based power plant and a 500 MW coal-based plant in the African country. The Navratna had also proposed to turn around a 1,320 MW Nigerian power plant, besides setting up a training institute in the country.

However, subsequently, the Nigerians have not shown much enthusiasm in making this deal operational. The apparent apathy of the African nation seems to have triggered a sense of apprehension within NTPC, which fears that failing to implement the MoU can greatly impinge upon the central utility`s domestic growth plans. Notably, gas supplies from Nigeria could help the central sector generator fuel its starving CCPPs, while, at the same time, augment its gas-based capacity to 10,000 MW, by 2017.

While NTPC`s determination makes sense, the reason why the the Nigerians are disinterested in NTPC's overtures needs to be looked into carefully. The power major seems to have stretched the Africans too far, by asking for gas at the same subsidized price at which Nigeria provides gas for its own power projects. This cannot be economically, as well as politically, palatable to the Nigerian government.