African safari: NTPC fires a blank in Nigeria

NEW DELHI: In a move that will hit NTPC Ltd’s Nigerian plans, the Nigerian government has forced the Indian power major to water down clauses in the memorandum of understanding (MoU) expected to be signed between the two sides soon.

Significantly, the Nigerian government has refused to allocate a proven gas block to NTPC.

While expressing its inability to provide a block with sufficient reserves to produce 5 million tonnes per annum (mtpa) of LNG for 25 years, Nigeria has agreed to provide only 3 mtpa of LNG to NTPC from its existing or future LNG terminals, where production is likely to commence in 5-6 years, subject to availability.

In return, NTPC will help in rehabilitating and renovating power plants, besides other technical and business assistance. Under the MoU, the company will commit to set up one 500 mw coal-based power plant and one 700 mw gas-based plant.

NTPC had sought 3mtpa of LNG till such time the gas block allocated to it goes on stream. However, with no hope to get the block, NTPC may have to content with a supply of only 3 mtpa.

Another setback to NTPC has come in the form of LNG price, since Nigeria has not agreed to the inclusion of words “at reasonable price” and has insisted that LNG will be provided at commercial rates.

Following this disagreement, the reference to the word ‘price’ in the draft MoU has been dropped, sources said. However, the Nigerian government will make available gas, oil or coal for NTPC’s power projects at reasonable rates, conforming to government’s pricing policy.

NTPC has recently routed the draft for the approval of the ministry of external affairs through its administrative ministry.

NTPC has also been asked to drop the clause relating to the export of oil and other raw materials from Nigeria, though the company will be allowed to export LNG pledged to it to its plants in India.

The fast-track restoration of Egbin thermal power plant in Nigeria by NTPC has also slipped out of the Indian company’s hands.

The $27 million contract has gone to state-owned Korea Electric Power Corp (KEPCO). There were also differences between the two sides on the arbitration clauses with the Nigerian side insisting that since the MoU was being signed with the Nigerian government, NTPC could not insist on a clause that could lead to suing the other party.

“They said that commercial or project-specific agreements that may be entered later could have arbitration provision,” said a source.

... While Essar bags a block              

The Essar group has bagged an exploration oil and gas block in Nigeria. A formal announcement from the Nigerian authorities is likely shortly. Essar Energy Holdings Ltd is expected to get Block 226, which is a shallow water offshore block.

Industry sources told DNA Money the block has recoverable reserves in excess of 80 million barrels. Reports from Nigeria indicated that of Essar Energy’s winning bid of $37 million, it has already paid 50% (amounting to $18.5 million). The balance will be paid on or before the execution of the production sharing contracts with the Nigerian National Petroleum Corporation (NNPC).

An Essar group’s official spokesperson said: “We have submitted bid and are awaiting confirmation.” He did not confirm the block.

The 2007 licensing round of the Nigerian government, with 45 blocks on offer, ended last Friday. Essar is the only Indian group to have bagged the block in the licensing round that was conducted by Nigerian government’s Department of Petroleum Resources (DPR).

Out of 45 oil blocks put up for auction by the DPR, 18 oil blocks situated in deepwaters, in the Niger Delta continental shelf and onshore, alone received 60 bids.

Essar Energy Holdings Ltd is part of Cayman Island based Essar Global, the overseas investment arm of the Ruias-owned Essar group. With the Nigerian block, Essar will have six oil and gas blocks. This includes one offshore and one onland block in Myanmar and three onshore blocks in Madagascar.