Petronet LNG Ltd (Dahej LNG Terminal Project) – The first phase of the project involved the construction and operation of a liquefied natural gas import and re-gasification terminal with a capacity of 5.0 million metric tons per annum (MMTPA) at Dahej in the State of Gujarat, India.
In a second phase, the terminal was expanded to 10 MMTPA. This project supports India’s sustainable economic development, as diesel engines and generators give way to LNG power, which has lower emission levels.
The project is owned by Petronet LNG Ltd (PLL), a 50:50 public-private joint venture.
Half of Petronet’s shares are held by four Indian state oil companies – Bharat Petroleum Corp. Ltd (BPCL), GAIL (India) Ltd, Indian Oil Corp. Ltd (IOL), and Oil and Natural Gas Corp. Ltd (ONGCL).
Gaz de France International (GDFI) holds a 10% equity stake, and the remaining 40% shares in Petronet are owned by Asian Development Bank (ADB) (5.2%) and other private interests.
Petronet operates commercially as a private sector entity with an independent board. Petronet is implementing the project on a build-own-transfer basis under the concession agreement with the Gujarat Maritime Board for 30 years.
India has national goals to reduce greenhouse gas emissions and strengthen energy security. The country aims to switch from oil and coal to natural gas. Currently, natural gas contributes only 8% to the country’s energy requirement with a plan to increase it to 15% by 2012 and 20% by 2025.
India’s natural gas demand was met by domestically produced gas, but with the start-up of Petronet in April 2004, India started importing gas. The government is seeking new ways to expand the role of natural gas after the success of this project.
In 1997, ADB provided technical assistance for a study on setting up a public-private joint venture to build and operate LNG terminals. As a result of the study, this concept was later incorporated in the Hydrocarbon Vision 2025, the Government framework for energy development.
The first phase construction was financed through equity and debt with equity contributions from its sponsors – BPCL, GAIL, IOC, and ONGC, holding 50% in total, and Gaz de France International (GDFI) holding 10%, ADB 5.2%, and public investors 34.8%; the entire debt requirement was met by loans from Indian banks that carry floating interest rates.
The expansion was financed through an ADB fixed interest rate loan of Rs 6.75 billion (~ $150 million), with ADB supported by a 50% partial credit guarantee from KfW Bankengruppe (KfW)
For the expansion, the funding structure of rupee- denominated debt from ADB enabled KfW to participate by providing risk cover to ADB. KfW did not have rupee funding capacity, and without this association with ADB, could not have assisted a project that needed long-term rupee financing. KfW’s partial credit guarantee also limited ADB’s net exposure to Petronet, in line with ADB’s single project exposure limit for private sector operations.
The joint venture and financing model could be replicated for other LNG or similar infrastructure projects.
The success of this project, including ADB’s support since project conceptualization, has had demonstrated effects and promoted strategic private sector investment in the gas sector.
Long-Term Policy Framework
In this case, the public-private partnership helped India to move toward its targets of greater natural gas use.
Private actors using their funds to provide a successful demonstration of a project’s feasibility will encourage further investment, especially in the clean energy sectors, which is currently viewed as a high-risk sector for investors due to the high initial investment and uncertain policy frameworks of many Asian countries.
The public actors must ensure a predictable and transparent policy and regulatory environment and must honor concession and off-take agreements.
Research and Development
With respect to private participants, the participation of GDFI (Directorate General for Foreign Investments) assured transfer of the best available technology and know-how in LNG terminal operation.
For large-scale projects with a clean energy component, robust contractual structures with creditworthy entities, both on the input and off-take sides, are critical to project success and financial viability.overnmental processes.
Strong governmental support coupled with management efficiencies and corporate governance contributed to the success of the Petronet LNG project. Experienced strategic stakeholders that provided technical expertise – exemplified here by Gaz de France and ADB – were also critical contributors.
For More Information Contact:
Asian Development Bank
Phone: (63 2) 632-6207
Project Information Document: