ALL THAT GAS

The simple folk of Anjanwel, a sleepy village facing the Arabian Sea in Maharashtra, were stirred on the morning of December 28. It was kilometres away but the silhouette of the ship was unmistakable as it rumbled through the mist into the U-shaped coast and docked at the private port set up by Ratnagiri Gas and Power (RGPPL), the company that took over the debris of what was Dabhol Power Company.

The ship carried 130,000 cubic metres of liquefied natural gas (LNG) from Russian company Gazprom and was only the second to arrive in these parts after the one that came nine months earlier. The first ship had to return as the equipment required to handle the cargo at the LNG terminal failed. This second one, in addition to causing a flutter in Anjanwel, would warm the heart of Prabhat Singh, Chairman of RGPPL, who allowed himself a smile when he heard of the new arrival as if the news he had just heard was about a newborn. For RGPPL, it is no less than a new baby, full of promise and sunshine, and one that has come after years in labour.

The LNG terminal and the adjacent gas-based power plant were originally envisaged in 1992 by the US-based Enron’s unit named after the neighbouring Dabhol village. While construction on the power project began in 1995, work on the terminal started three years later. Disputes between Enron and the Maharashtra government, followed by the US company’s bankruptcy, mothballed the project for several years until the central government roped in state-run utilities GAIL and NTPC in 2004 to set up RGPPL to revive the power plant and gas terminal. Each owns a 31.5 per cent stake in RGPPL. The rest is with the Maharashtra State Electricity Board(MSEB) and lenders.

When RGPPL took over Dabhol’s assets, the LNG terminal was 80 per cent complete. Even as the power plant went on stream, faulty equipment and legal disputes with suppliers delayed the terminal’s commissioning. But the ship on December 28 promises to change things. The next few days after the ship’s arrival, gas coursed through pipelines and storage tanks as the company tested the equipment. Finally, RGPPL commissioned the terminal on January 10.

It is only the third LNG terminal in India, after Dahej and Hazira in Gujarat, and has a capacity to import five million tonnes of LNG a year. At present, RGPPL cannot use the terminal during the monsoon season as the breakwater, used to guard against tidal waves, is not yet ready.

RGPPL will not run its power plant on gas from this terminal, as this will not make business sense. This is because the power plant, which NTPC operates, gets gas mainly from Reliance Industries’s KG-D6 field at a price of $4.2 per million British ther- mal units. The plant has a commitment to sell electricity to the MSEB at`4.10 to `4.20 a unit. Generating power using imported LNG, which costs between $9 and $12 per mBtu, will not be viable. “It would be very difficult for RGPPL to generate power on imported gas,” says Managing Director Manash Sarkar.

The terminal can make a business case only if GAIL, its operator, sells its gas in the open market. That is on the anvil. The Dabhol-Panvel pipeline is ready, and a GAIL spokesperson says the company is likely to commission the Dabhol-Bangalore pipeline, which will supply gas to industrial users in Goa and Karnataka, by the end of March.

Imported LNG will fetch between$11 and $14 in the open market. But GAIL has not yet tied up with any suppliers. GAIL will pay `45 per mBtu to RGPPL as fee to operate the terminal for 25 years. Back-of-theenvelope calculations suggest that RGPPL can potentially earn as much as `1,200 crore in revenue when the terminal operates at full capacity.

The terminal’s revenue will be a shot in the arm for RGPPL, which has been reeling under a sharp cut in gas supply from KG-D6. The supply has fallen from 9.2 million metric standard cubic metres per day in 2011 to less than 2.5 mmscmd, forcing the power plant to operate at less than 20 per cent of its 1,967 megawatt capacity. The capacity utilisation was a robust 80 per cent in July 2011. Lower generation is likely to hit the company’s financials in the current financial year. In 2011/12, RGPPL posted a net profit of `1,089 crore on revenue of `5,229 crore.

But the company’s books, thanks to the terminal, will be healthier in the future than feared. And that is why Chairman Singh was smiling. But it will take a lot more to make him laugh.