Financial Daily from THE HINDU group of publications
Wednesday, Aug 18, 2004
Industry & Economy - Petroleum
Corporate - Corporate Disputes
$700-m Hazira LNG terminal Shell, Essar lock horns over equity position
Ahmedabad , Aug. 17
THE LNG terminal and regassification plant at Hazira, being put up by the Royal Dutch/ Shell Group through two special purpose vehicles (SPVs) - Hazira Port Pvt Ltd (HPPL) and Hazira LNG Pvt Ltd - is in the eye of a storm that is threatening to gather momentum in the coming days.
The $700-million Hazira project, expected to be commissioned by late 2004, is facing a breach of trust case by the Essar group, Shell's Indian partner in the consortium that was granted the letter of intent (LoI) by the Gujarat Maritime Board (GMB) in 1999.
The bone of contention is Shell's decision to go solo at Hazira and keep out its bid partner, Essar, from exercising its option to take a 50 per cent equity position in the project.
There is also a question as to who would implement the $100-million second phase development of the project that comprises construction of the solid cargo terminal, slated to start later this year.
In the process, coming under the microscope is the legality of an Indian port being handed over in toto to a foreign company. Issues of national security are being raised as Gujarat is rated high among defence security zones in the country.
Speaking to Business Line, Mr H.K. Dash, Vice-Chairman and CEO of GMB, the nodal agency of the Gujarat Government for port development, admitted that there was a dispute between the two companies.
"The Essar group wrote to us in late June pointing out that it was they who originally initiated the Hazira port development plan, which was later converted to a consortium with Shell. Sometime in July we wrote to the Shell group seeking clarification as to the role that Essar group could play in the development of the Hazira project that was mutually acceptable. The Shell group is yet to reply," he said.
The GMB admitted that it was the Essar-Shell duo that had bid for the Hazira project where Mobil and Reliance were the two other companies in the race.
While Mobil dropped out after getting involved in the Dahej LNG project, Reliance was pipped by the Essar-Shell consortium where Crisil was the bid evaluator.
"The GMB has granted concession to the Shell-Essar combine. As per the agreement between the consortium partners, we are entitled to equity investment in the concession company. In any event, Essar would adhere strictly to the terms of the agreement entered into between the consortium partners," said a senior Essar official.
However, according to a Shell spokesperson, the group has held various discussions with Essar on a range of possibilities over a number of years in relation to the Hazira port project.
This included the possible development by Essar Steel Ltd (ESL) of a bulk cargo berth at the port and the possible supply of regassified LNG to Essar Power Ltd (EPL) and/or ESL.
HPPL and Essar were in discussions on the possibility of development of a bulk/break-bulk cargo terminal at Hazira to meet the requirements of Essar Steel and the GMB has been kept informed of the discussions, he said.
"In January 1998, the FIPB approved Shell's application for Shell's wholly owned Indian subsidiaries to build, own and operate the port and LNG import terminal at Hazira. Shell's FIPB application set out the benefits of natural gas supply to Hazira units of EPL and ESL.
"An MoU between Essar Investments and Shell Gas BV recorded the intention of the parties to enter into a joint venture by way of Essar acquiring equity in the company incorporated to develop the port on terms to be agreed. The opportunity for Essar to acquire such equity lapsed in October 2003 as per the terms of the MoU without Essar having acquired any equity."
Meanwhile, it may be time for some hard-nosed negotiations between the two companies before they arrive at mutually agreeable commercial terms.
This is all the more true in view of the zero date for commissioning the Hazira LNG project drawing near, and with Shell planning to commence operations in the last quarter of the year.
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