Renegotiation of power purchase agreements by some states amid falling tariffs has India’s largest gas distributor GAIL India Ltd. worried.
Cancellation of agreements is bothering “not only us but is a real pain point for solar power plants too”, BC Tripathi, chairman and managing director of GAIL India, said at an event in Delhi on Wednesday. “We need rules to prevent power units from cancelling gas pacts,” he said.
GAIL supplies fuel to power plants. At 25,000 megawatts, gas-based units account for more than a tenth of India’s thermal power generation as of June, according to the Central Electricity Authority.
Uttar Pradesh cancelled pacts with seven power projects with a cumulative capacity of 7,040 megawatts, Bloomberg had reported. Andhra Pradesh and Karnataka are also trying to cancel agreements with power suppliers or revise rates downward. The efforts to rework pricing came after solar power tariffs fell to an all-time low earlier this year.
“Old power purchase agreements are not being honoured. We are facing a similar situation in gas, and that too not only in the private sector, but also in the government sector. We need to address these issues. Only then we can move towards the goal of achieving gas-based economy,” Tripathi said.
India Looking To Rework More LNG Contracts
India is looking to rework more liquefied natural gas contracts after renegotiating pacts with Qatar and Exxon Mobil Corporation’s Gorgon project in Western Australia at lower prices.
While only long-term contracts were available earlier, users now prefer short-term pacts and renegotiate prices after five to six years, said Tripathi. “We successfully renegotiated contracts along with Petronet LNG and are working on third and fourth contracts. We are moving from a supply-constraint market to supply surplus.”
Tripathi declined to divulge details.
Renegotiation of Gorgon LNG contract could pave the way for reworking other high-cost LNG deals, ICRA recently said. “It is expected that major buyers in Japan, South Korea and China could also look to renegotiate contracts to reflect term prices more aligned to the spot market,” K Ravichandran, senior vice-president and group head-corporate sector ratings at ICRA, said. “Already utilities in Japan have grouped to pool their buying power and seek more flexible and shorter-term deals.”
Petronet LNG reached an agreement to rework a LNG supply agreement with Exxon Mobil after reworking a deal with Qatar. Exxon Mobil agreed to charge 13.9 per cent of the prevailing Brent oil price at the port of delivery rather than previously decided 14.5 per cent of the rate at the port of loading, newswire PTI had reported.
Renegotiation of LNG contracts with Gorgon will have an advantage of net present value of Rs 4,000 crore, Prabhat Singh, chairman and managing director at Petronet LNG Ltd., told BloombergQuint. “If there will be a need to renegotiate other contracts—which I feel it is—and if there is any requirement from the Indian side, we will do that.”
‘Unified Tariff To Push Consumption’
Unified tariffs of LNG companies proposed by the Petroleum Regulatory and Natural Gas Board will increase consumption, Singh said. “If national gas GRID gets connected, that will increase the volumes of consumption in India and it may help our terminal utilisation,” he said.
According to Bloomberg New Energy Finance LNG Outlook 2017, India's LNG demand is set to surge 50 percent by 2022 as a result of an expanding gas grid and new import terminals.