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Tata Power wants LNG terminal to be part of Dabhol deal

S Ravindran & Hemangi Balse

Tata Power, which is interested in buying out the promoters' equity in the embattled Dabhol Power Company, is keen on acquiring the adjoining liquefied natural gas terminal too.

Financial institutions, which are currently overseeing the sell-off, are considering the option of spinning off the LNG terminal to bring down the capital cost of the project prior to the sale.

This is in line with the recommendations of the Godbole Committee. A source close to the development said, "Tata Power is keen on acquiring the project along with the LNG facility. It plans to hive it off later into a separate company and then induct a partner."

A final decision on this by Tata Power will be taken only after the due diligence in the project is completed, the source added.

Public sector behemoth Gas Authority of India, and multinationals British Gas and Shell have already evinced interest in buying the LNG facility.

The power plant requires only 2.1 million tonne of LNG while a 5 million tonne terminal has been partially constructed.

The acquisition of this terminal fits in neatly with Tata Power's publicly declared plans for emerging as a key player in the energy sector. Its earlier plans to construct an LNG terminal at Trombay near Mumbai in partnership with TotalFina SA of France and GAIL had come a cropper.

Tata Power and the Mumbai distribution major BSES Ltd are the two serious contenders for picking up a 85 per cent stake in DPC after the three US-based shareholders -- Enron, General Electric and Bechtel -- decided to exit.

DPC and the two prospective bidders have informally agreed on conducting due diligence subject to nod from offshore lenders.

Analysts rationalise that the takeover of the LNG plant will enable Tata Power to have control over the fuel supply chain. Otherwise they may have to enter into a separate agreement with the buyer of the LNG terminal which could result in their paying more for the fuel which will finally translate into higher tariffs, which has been the bane of the Dabhol power project.

"At a later date, it makes sense to spin off the facility into a separate company as a partner would be required since the Tata group lacks experience in operating LNG terminals. A prospective joint venture partner who is interested in the LNG venture may not be necessarily keen on picking up a stake in the power company," an analyst added.

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