Petronet needs strategic partner at Gangavaram, says MD

India's largest gas importer, Petronet LNG is likely to offer equity stakes for its Gangavaram project. Speaking about the project, Dr AK Balyan CEO & MD of Petronet LNG told CNBC-TV18 that they have not received any formal request from RIL or BP for the project. The company is looking for a strategic partner at Gangavaram to secure LNG supplies and at present, have held discussion with HPCL for the stake, informed Balyan. He further added that the company is trying to rope in a foreign strategic partner who can supply LNG.

News of the Asian Development Bank (ADB) selling its 5.2% stake in Petronet LNG is doing the rounds and Balyan explained that ONGC, IOC or BPCL is not interested in the stake. However, GAIL's decision on the matter will be known soon and it will probably be in line with the other public sector oil companies, he feels. From, Petronet's point of view, Balyan would prefer the ADB stake to go to a strategic player who can enrich their business.  In the first quarter of FY12 Petronet LNG reported net profit of Rs 271 crore, a rise of 10.6% quarter-on-quarter and the company's net sales grew 9.7% to Rs 6,993 crore from Rs 6375.4 crore in the corresponding quarter last fiscal.  Below is the edited transcript of the interview on CNBC-TV18. Q: Just wanted to touch upon some news reports this morning with regards to RIL and BP's plan which might be grounded in terms of taking a stake in one of your terminals. I just wanted some more clarity with regards to these news reports and what your clarification would be?
A: Let me clarify that Reliance has been a buying from us for a long time. Off and on they keep buying a lot of gas from us, through GAIL and through other major off takers. We are aware that Reliance has some arrangement with BP and but, we do not have any exact details of their program.
We also do not have any kind of formal request to talk to us, to negotiate or offer anything on that sort for Gangavaram. Gangavaram is our project which is structured differently from Dahej and Kochi. It is through an SPV where we have kept some provision for strategic partnership.
Actually we are looking at a strategic partner who can come in and add value to our Project Gangavaram, in an effort to bring in better priced LNG for the long-term. We might also be giving some equity to the Gangavaram Port itself. But we haven't had any formal discussion on this. I am not able to comment on this now. Q: Are there any positive vibes at all just to complete the argument? Is there a chance? Should we expect that such a stake will be asked for and be given?
A: It's very difficult to say. Certainly as a buyer of gas and marketer in the country and with their intention to go into the marketing area, we appreciate that. They maybe coming for buying gas to us. But as far as equity is concerned, we haven't had a discussion and we are not focused on that at the moment.
_PAGEBREAK_ Q: Who is the equity holder in Gangavaram? At one point in time there were a lot of people who were interested. At the moment, who are the interested parties and who hold the equity there?
A: Let me clarify again that Petronet would definitely be keeping the major part of the equity as a major player to operate and manage the Gangavaram Port LNG terminal. We have agreed to give some equity, a minor equity of about 8% to the Gangavaram Port.
We have had discussions with HPCL which has a refinery next to the Gangavaram Port, close to our LNG terminal. We would be willing to give some equity to HPCL. They are going to be our major off takers and they would consume larger quantities of gas over a period of time.
But, we are keeping a minor equity for a foreign strategic partner and we haven't really closed that issue. That's what we are looking for in that specific area. We are not looking for any equity partner as far as financial investment is concerned. It's very strategic, adding value to the project in terms of sourcing of LNG. Q: Do you have full discretion in terms of choosing a strategic partner? The reason I am asking is that reports also indicate that you were apparently in talks with RIL and BP had slowed down because the Petroleum Ministry asked Petronet LNG to reconsider the partnership?
A: As I said, we have had no formal discussion and there is no request about that. I will not be able to comment on it. But yes, they wish to buy a lot of gas from us and that is surely for their marketing purpose. Q: Can you give us the highlights of the quarter's performance, your profits were a positive surprise for the markets despite the drop in volumes, what went right and what were the highlights of the quarter's performance?
A: Let me say that we have done volumes, which is 100% capacity utilization for the terminal. That is a good situation for us. There is a marginal decrease in the volumes that we have supplied, around -6% or so from 135 trillion btu that we do in a quarter, like-to-like and it was about 127 trillion btu this time. So there is a marginal fall.
I think this has been largely 4-5 of the fertiliser plants had taken a maintenance shut down and the offtake in the month of April was pretty bad, much lower than what we expected. But in the last one and a half months it has picked up. The volumes have been largely on account of the lesser offtake by the fertiliser companies.
There are two things that have helped us in the higher turnover. One is of course the dollar-rupee difference, the appreciation of the dollar and number two is the increase in LNG pricing which as per the present mechanism goes up by approximately 20 cents per month. I think both these have contributed to a higher turnover. The dollar change has affected to the extent of Rs 350-400 crore and that is a major reason for this higher turnover.
From the profit point of view, I can say, like-to-like if you compare from the quarter last year, the 5% higher regasification charges have contributed. Q: The other news which is quite a hot topic at this point in time is the Asian Development Bank (ADB) stake sell. There is lot of speculation and there is no clarification as of now whether GAIL is in the race or not, can you clarify with regards to what exactly is happening on the ADB stake sell and who possibly would be negotiating or bidding for that 5.2%?
A: Firstly, the ministry of petroleum had given certain recommendations which the board needs to review. We understand that the three boards of the ONGC, IOC and BPCL have reviewed their earlier decision and have already communicated to ADB for going ahead with their sales and having some strategic partner in place of ADB.
GAIL was to take a decision in their last board meeting. I am not sure what exactly has happened there. We will come to know about it in the coming days. But, I think it is in line with most of the companies and they have gone ahead as per the recommendation of the ministry of petroleum. They must have communicated it to the Asian Development Bank and we hope that the process is on.
_PAGEBREAK_ Q: So if GAIL also were to toe the line as you said of the other 3 equity holders, then are you in talks with anyone else? Would it be one of the Qatar gas suppliers in which case they would have a strategic interest and that would be beneficial to you as well? So should we expect one of your gas suppliers to pick up that 5-5.2% stake?
A: As a process we have hardly any role to play. It is ADB's stake and they are going to sell it to a prospective buyer. We have to only later take it on once this comes to our board for information or ratification. Essentially, it is the four promoters and the ADB that have to go ahead with the process.
I am sure the understanding from all promoters and ADB is that whosoever buys should actually strategically add value to the company's working and maintain the present structure of the company. They are working on that and I only know that there have been many companies, financial institutions, major funds who had shown interest. But, I am not aware of any shortlisted buyer or with whom ADB has actually moved ahead. Q: You can't give your investors the confidence that perhaps one of the gas suppliers will be picking up the stake, the likelihood doesn't look very high for you or does it?
A: It is very likely to have any major LNG producer, major ENP company, major fund which deals with oil and gas sector. Anyone of them would add value and as you know, all the promoters have had this point of view that we would be comfortable with any strategic partner who adds value. I am sure they will take care of the overall working and the long term perspective of the company's functioning. Q: Can you give us an idea of what will be the utilization at Kochi in the current year or in the next twelve months?
A: Kochi most likely would be commissioned around New Year. We are trying to finalise the dates with the completion of the pipeline network, connectivity with us, connectivity with the actual consumers and preparedness of the actual consumers to receive gas. I think all this is being worked out by the teams tactically. We expect this to happen somewhere in the New Year.
But, the first phase of the pipeline would be ready, connecting four-five consumers near about 45 kilometers of pipeline. We should be able to supply, but the utilization would be of the order of about 0.6-0.7 million tonne an annum, slowly rising as more consumers come in.
It will be around 1 million tonne per annum. But, the major thrust would come when the second phase of the pipeline connecting Kochi to Mangalore and Kochi to Bangalore via Tamil Nadu would be commissioned sometime next year. I think there would be a quantum jump on the utilization. Q: So from calendar 2013, we should assume 6.7 million tonne, is it?
A: At Kochi, we feel it should be around 75% to 80% of its capacity utilization when the phase II is completed next year end.