Rejected once and unable to meet key milestones, including financial closure, even 17 months after deadline, Swan Energy Ltd, promoted by influential Gujarat businessman Nikhil Merchant, has asked state-run oil companies to give him a fourth extension. And approve a new commissioning date of March 2020 for its proposed LNG regasification terminal at Jafrabad in Gujarat.
The Rs 5,117-crore plant is meant to convert LNG, imported by these firms, into its gaseous form so that it can be piped to domestic end-users. At a capacity of 5 million tonnes, it will bring Swan an annual revenue of an estimated Rs 1,400 crore.
In a letter dated October 13, Swan’s special purpose vehicle Swan LNG Private Ltd wrote to users Indian Oil Corp, Oil & Natural Gas Corp, Bharat Petroleum and Gujarat State Petroleum Corp to consider fixing the project’s “Effective Date” as December 8, 2016.
As per the agreement between Swan and these four firms, commissioning of the plant is envisaged 33 to 39 months from the Effective Date — which means the four have to decide on their overseas LNG suppliers and tie up with their domestic natural gas buyers by March 2020.
The four are yet to reply to the October letter but a similar request made by Swan on September 1 was turned down at a joint meeting of the four companies on September 21.
Their argument: Effective Date should be when the project achieves financial closure and all key conditions met.
Swan attributed its delay in financial closure to “recent unwanted developments i.e. banking frauds, high NPAs, weak capital levels with public sector banks”.
But the four firms argued that they would suffer either way if the commissioning was set for March 2020: they have to start using the terminal by then or pay “Use or Pay” charges. That would entail paying 75 perc ent of the tolling charge (Rs 57.38 per million British thermal units) even without using the terminal.
Also, they would have to tie up with both the LNG supplier and buyers in anticipation of Swan’s readiness. And, in case of further delay by Swan, they would end up paying a penalty to both.
“In case Swan is unable to obtain financial closure in the coming months, the User’s liabilities will not only be towards ‘Use or Pay’ to Swan LNG but also to the LNG supplier under ‘Take or Pay’ clause ($8-$9 per mBtu) and regassified LNG buyer under ‘Supply or Pay’ clause ($9-$10 per mBtu),” they warned.
That’s why, the firms argued, the “effective date” should be when Swan LNG notifies in writing that it has achieved all six pre-conditions, including financial closure. And decided to give Swan LNG time until December 31 to satisfy all pre-conditions as requested on September 1.
Swan was to achieve all key pre-conditions by June 23, 2017 — a year after signing of the regassification agreement with the foundation users.
When contacted, Swan Energy Managing Director Nikhil Merchant told The Indian Express that Swan LNG had achieved financial closure for a part of the project. He claimed that contract for port facilities had been since awarded and the tie-in for regassified LNG transporter was the foundation users’ responsibility.
On his request for a new Effective Date, Merchant said that it should be considered on the basis of the letter of intent issued by the Gujarat Maritime Board which has granted space for the project.
“The Concession Agreement (issued by GMB) supersedes all agreements and therefore this should be considered for the effective date,” he said.
Swan LNG’s letter, however, said that if the users insisted on fulfilment of each of the conditions, the commissioning date would have to be postponed to mid-2021.
The four companies had thrown their weight behind Swan’s proposed terminal by signing agreements on June 23, 2016 to use the proposed terminal to bring in their own LNG and get it converted into gas by paying Swan a tolling fee of Rs 57.38 per mBtu.
While ONGC, IOC and BPCL have each taken 1 million tonne capacity in the proposed plant, GSPC has booked 1.5 million tonnes.