Regional LNG: ADB backing development of India's first LNG terminal

The following news release was issued by Asian Development Bank on 13 January 2004.

MANILA, PHILIPPINES - Asian Development Bank (ADB) is backing a project to develop India's first liquefied natural gas (LNG) terminal, through an equity investment and partial credit guarantee (PCG) totaling US$75 million equivalent approved on Tuesday.

The project involves construction and operation, on a build-operate-transfer basis, of an LNG import and regasification terminal at Dahej, Gujarat. Commercial operation of the terminal, which will have a capacity of 5 million metric tons per annum, is expected to start in April 2004.

The project will serve gas users along the 2,500-km Hazira-Bijaypur-Jadgishpur pipeline, covering Gujarat, Western Madhya Pradesh, Rajasthan, Delhi, Haryana, and Western Uttar Pradesh, and those near Uran, Maharashtra.

The equity investment, from ADB's ordinary capital resources, will subscribe up to a 5.2% share in Petronet LNG Limited (PLL), the company that is developing the $547 million project under a 30-year concession agreement with the Gujarat Maritime Board.

PLL is sponsored by Bharat Petroleum Corporation Limited, GAIL (India) Limited, Indian Oil Corporation Limited, Oil and Natural Gas Corporation Limited, and GDF International, a subsidiary of Gaz de France.

"The project is designed to promote economic growth by meeting the growing energy demands of North and West India and providing lower cost and cleaner fuel for the oil, power, transport and fertilizer sectors," says Kurumi Fukaya, an ADB Structured Finance Specialist.

"As a public-private partnership, it should provide a model for good practice in energy infrastructure development. It is a step towards the full liberalization of the energy sector."

ADB's PCG will support a PLL bond issue of up to Rs7,000 million (equivalent to $148.9 million) without government counter-guarantee.

It marks ADB's first long-term PCG to be provided through its private sector operations and the first usage of a PCG to help develop the local currency bond market.

Cleo Kawawaki, ADB's Cofinancing Specialist responsible for guarantees notes: "The PCG will help catalyze Indian rupee-denominated long-term debt financing with a fixed interest rate to enhance the project's sustainability and affordability.

"It should also bring in investors such as insurance companies that would not otherwise invest in projects of this kind, broadening the investor base of the country's capital market."

India is the seventh largest energy consumer in the world, with the predominant source of primary energy being coal (55%) followed by oil (31%). The share of natural gas is only 8% compared with the world average of 25%.

Recent environmental concerns as well as rising oil prices have made natural gas a more attractive source of energy.

Natural gas has been produced in India since the 1960s, but until the mid-1980s, lacked the infrastructure to use the gas produced. Domestic production levels have not kept pace with the increase in demand for natural gas, especially from the power and fertilizer sectors, which consume about 78% of the gas produced. (End of release)