Indian State-run companies drop investment plans in Adani’s LNG terminal project

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KOLKATA (miningweekly.com) – Indian State-run oil refiner-marketer Indian Oil Corporation (IOC) and gas infrastructure and logistics major GAIL India have passed up the option to pick up a 50% stake in a liquefied natural gas (LNG) terminal project proposed by the Adani Group in the eastern coastal state of Odisha.

Indian Petroleum and Natural Gas Minister Dhramendra Pradhan said in a statement this week that the agreement between IOC, Gail and Adani to buy 50% equity stake in the proposed $735-million LNG terminal project at Dhamra, Odisha had lapsed.

“GAIL and IOC have informed that they have not made any capital expenditure in this project,” Pradhan said, without elaborating on whether the State-run companies would re-negotiate the terms of the agreement with Adani or if the plans had been altogether scrapped.

IOC and GAIL had signed a memorandum of understanding with Adani to buy 39% and 11% equity, respectively, in the LNG terminal project in 2016, which expired last year.

Participation in the Dhamra LNG terminal project, with its critical linkages with IOC and GAIL’s existing operational plans in eastern India, had been envisaged. While IOC had planned to utilise at least 60% of the planned terminal’s 1.5-million-ton-a-year capacity to feed its refineries in Haldia, in West Bengal, and Paradip, in Odisha, GAIL too had been keen to act as the logistical service provider and meet energy needs in the eastern region.

Equity investment in the Adani project by IOC and GAIL had been planned close on the heels of the latter exiting another LNG terminal project to be constructed by Dhamra Port authorities under the banner of Dhamra LNG Port Corporation.

Although there has been no official confirmation on IOC and GAIL being allowed to let the agreement with Adani lapse, some industry sources indicate that one of the major reasons for scrapping the investment was an assessment that there was excess capacity being built up along the eastern coastline well in excess of even long term energy demand in the region.

In this context it might be noted that IOC has already operationalised a five-million-ton-a-year LNG terminal at Ennore in Tamil Nadu, also along the eastern coastline, while the Hiranandani Group was constructing a four-million-ton-a-year floating LNG terminal close to Haldia port in the eastern state of West Bengal.

This greenfield capacity, along with the terminal project planned by Dhamra Port authorities, held the potential to provide the excess capacity needed vis-à-vis projected energy demand in the eastern region and was possibly one of the reasons for the State-run companies allowing the agreement with Adani to lapse, the sources said.

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