NTPC to offer stakes to gas suppliers

NTPC will offer gas producers stakes in its power projects to ensure long-term fuel supply, a clear departure from its earlier strategy of buying equity in gas assets abroad.
The state-run power producer has offered up to 20% equity to Qatar Petroleum in its gas-based projects at Kayamkulam in Kerala and Ratnagiri Gas and Power in Maharashtra. The two power projects on the west coast of India depend on imported liquefied natural gas (LNG) for fuel requirements.
“We had a few rounds of discussions with government of Qatar and expect to reach some agreement very soon,” a senior NTPC official said. “The model, if successful, will be replicated for other existing and proposed gas-based power projects,” he said, requesting anonymity.
The company’s board has empowered the management to negotiate a deal. NTPC doesn’t need prior approval from the government, which holds 84% in the company, as it has been granted maharatna status that offers functional autonomy to public sector firms.
Under the proposed deal, NTPC will spin off Kayamkulam power project into a special purpose vehicle and offer equity to Qatar Petroleum. The company hasn’t done a valuation exercise for the project.
“While we will like to keep equity participation from Qatar at the 10-20% level, in the case of Kayamkulam project it could be raised to 40%, depending on the interest shown by the government-owned company from Qatar,” said another NTPC official, who asked not to be named.
Offering equity stakes to component suppliers is a common practice in the automobiles industry, but replicating the same has been found difficult for resources based-companies, given the global competition for such assets. Secured fuel supply will help NTPC expand the capacity of these power plants.
The equity deal is expected to help NTPC clinch a long-term fuel supply deal, reducing its reliance on costly imported LNG secured through commercial deals.In the case of coal assets also, NTPC has decided to invite bids from companies interested in picking up stake, instead of searching overseas through merchant bankers.
Petronet LNG supplies gas to the 350 MW Kayamkulam project. NTPC wants to scale up the plant to 2,300 MW, but has not been able to proceed in the absence of fuel supply agreements. It also plans to expand the Ratnagiri plant by another 2000 MW. Currently it produces about 1940 MW of power.
In the case of Ratnagiri Power, erstwhile Dabhol power plant, stake offer to Qatar Petroleum will not be an issue as the project is an independent joint venture between central utilities and the state government.
Reliance Industries’ KG Basin field has vastly increased the gas supply, but even that falls short of the requirements of all existing and future projects. Natural gas is mostly imported from Qatar through supply agreements.
NTPC has indicated an initial gas requirement of 30 mmscmd for all the proposed new projects that includes expansion projects of 1000 MW each at Badarpur, Auraiya, Faridabad and Dadri and a proposed 2000 MW expansion of RGPPL.
The company generates about 4,000 MW of electricity from its seven gas-based plants, apart from 1,940 MW generated at Ratanagiri plant, a joint venture with GAIL and the Maharashtra State Electricity Board.The company requires 17 mmscmd of gas, which is expected to rise rapidly with an increase in gas-based power capacity to over 10,000 MW in the next five years.