NTPC may get RIL gas at discount

NEW DELHI: A breakthrough in the NTPC-RIL gas contract appears to be in the making. The government is planning to invoke a clause in the production-sharing contract by which gas can be sold at a concessional rate to the power company.

The petroleum ministry, which approves the valuation of gas, is likely to consider the NTPC case as distinct from the RIL-RNRL agreement.

This would come as a relief to the power-deficit states of Uttar Pradesh and Delhi, which would benefit with additional power from the Kawas and Gandhar power plants of NTPC, which are supposed to run on RIL gas. Cheaper gas for these power plants would also ensure cheap power for consumers in this region.

The success of this endeavour to save the NTPC deal will depend on whether RIL and NTPC can reach a settlement on the liability clause and conclude a gas sale agreement. Although RIL can opt to pay demurages and walk out of the deal, there may be ‘political pressure’ on the company to honour its commitments to a PSU company, said government sources.

Petroleum ministry officials indicated that the two cases were ‘distinctly different’ and the gas price for NTPC cannot be treated as a benchmark for the sale of gas from these fields to other parties. “The NTPC contract was via an open competitive bidding and it was carried out at a time when prices were much lower,” an official said.

Thus, while the petroleum ministry has not approved the contract between RIL and RNRL ( Reliance Natural Resources) on the ground that the contract was not at arms length, a similar objection would not hold in case of NTPC because of competitive bidding.

The petroleum ministry, which will also take a hit on its profit petroleum if RIL has to honour its commitment to NTPC, is expected to do so as the latter will be treated as a government nominee for which there are separate valuation norms.

A clause of the production sharing contract allows the government to sell gas at special rates, if it is sold to the government or a government nominee.

There is mounting pressure from several quarters, including the Cabinet secretariat, to revive the NTPC deal as it would bring an additional 1,300 MW capacity to the northern grid.

RIL had bagged the NTPC gas contract by offering $2.97 per MBtu (million British thermal units) through an international competitive bidding in ’04. However, the two parties were unable to convert the bid into a gas contract in the two years that went by.

Differences between the two over the liability clause in the gas contract have led to litigation and the case is now subjudice.