PETRONET LNG Share price

OUR HISTORYRATIONALE FOR LNG TERMINALIndia is the seventh largest energy consumer in the world. Thepredominant source of primary energy in India is coal with a 56.9%share followed by oil (31.9%) natural gas (7.9%) hydro (2.4%) andnuclear (0.9%). Most developed countries on the other hand aredependent more on oil and natural gas resources for their energyrequirements as may be observed from the following table:Energy Consumption Pattern in India and the World (%)Fuel India Europe North Middle East Asia Pacific World America Oil 30.85 40.13 40.40 51.96 38.73 40.03Natural Gas 7.53 22.33 26.64 45.64 10.94 24.72Coal 55.13 18.16 22.39 2.01 40.64 24.98Nuclear 1.40 11.88 7.68 0.00 4.58 7.64Hydro-electric 5.12 7.52 4.91 0.38 5.13 2.63Source: BP Statistical Review of World Energy.2002Further recent concerns for the environment as well as spiraling oilprices have given a major boost to natural gas as a source of energy.Natural gas is a clean burning fuel with low emission levels due towhich it is being recognised as the "fuel of the future".In India natural gas has been produced in the Assam and Gujaratregions since the 1960s. However the major increase in production andutilisation of natural gas commenced in the late 1970s with discoveryof Bombay High fields. The current production of natural gas in Indiais of the order of 84 MMSCMD. However domestic production levels havenot kept pace with the increase in the demand for natural gasespecially from the fertiliser and power sectors. As per theHydrocarbon Vision 2025 prepared by MoPNG GoI the current demand fornatural gas in the country would be of the order of 151 MMSCMD whichimplies a deficit of around 86 MMSCMD (approximately equivalent to 22MMTPA of LNG).In order to meet the existing unmet demand and potential demand fornatural gas. Government of India decided to explore the options ofimporting gas through inter-continental pipelines and import of gas inthe form of natural gas.FORMATION OF JOINT VENTURE COMPANYMinistry of Petroleum & Natural Gas (MOPNG) Government of India videletter no L-12018/1/96-GP dated July 41997 approved formation of JVCwith equity participation from BPCL GAIL IOC and ONGC to setup LNGimport and regasification facilities. As per the directions issuedunder this letter it was stated that the participation of PublicSector Undertakings would be to the extent of 50% and out of thebalance 50% upto 26% to suppliers of LNG/other strategic partners andthe balance to the public.INCORPORATION & INITIAL PROGRESS7. Incorporation:We were incorporated on April 21998 under the Companies Act 1956 andreceived certificate of commencement of business on June 1 1998.50% ofthe initial contribution to our paid up capital of Rs 2000 was made byBPCL GAIL IOC ONGC and the balance paid up capital was subscribed byindividuals.Promoters Agreement was signed on May 242001 specifying the rights &obligations of each of the Promoters in their management of theCompany. Shareholders Agreement was signed between us our promotersand GDFI on June 22001 specifying the rights and obligations of thepromoters and GDFI.2. Issue of Letter of Intent:Gujarat Maritime Board issued Letter of Intent (Letter noGMB/N/PVT/183(10) 5064 dated August 291998) ("LOI") granting us theright to develop a port for commercial use onBuilt-Own-Operate-Transfer Basis subject to the terms & conditions tobe stipulated in the Concession Agreement to be signed between GMB andPLL. As per the LOI issued by GMB we are also required to set up asolid cargo terminal alongside the LNG import terminal at Dahej. Wepropose to implement the solid cargo port project through another SPVin which we may take up 26% equity stake. We have selected a consortiumled by Adani Exports Limited as the Joint Venture partner fordeveloping the solid cargo port and have informed GMB accordingly.We commenced the process of obtaining various Government Approvals forimplementing the Project. The details of various approvalsobtained/being obtained is given under para Government Approvals onpage no 16 of Red Herring Prospectus.3. Promoters Agreement & Shareholders Agreement:We have entered into Promoters Agreement with our Promoters on May242001 which determines the rights & obligations of each of thePromoters in the management of the Company. After inclusion of GDFI asa strategic partner & equity shareholder we signd of shareholdersAgreement with GDFI & our Promoters outlining the rights of Promotersand GDFI in the management of our company. Shareholders Agreement wassigned on June 22001. For more details pi refer para Business-BriefDescription of key contracts/agreements. On page 39 of Red HerringProspectus.4. Selection of LNG SupplierIn November 1996 GAIL invited global offers for supply of LNG fromproducers & exporters of LNG. In response to the global offer 17international companies responded. These 17 parties were invited todemonstrate their ability and capability to supply LNG throughclarifications and presentations & 7 parties were short listed basedupon the evaluation criteria. All seven short-listed parties submittedtheir offers. The offers were evaluated and five out of the sevenparties met the threshold criteria. This evaluation was considered bythe Committee on July281998 and it was decided to open the price bidsfrom following parties* Woodside Petroleum Australia* Chevron Australia* Shell International U.K.* Petronas Malaysia* Rasgas - Mobil QatarAfter evaluation of the price offers the consortium of Rasgas andMobil was identified as the most preferred supplier for commencingnegotiations for purchase of 5MMTPA of LNG for Dahej and 2.5 MMTPA ofLNG for Cochin.A Heads of Agreement was executed between PLL Rasgas and Mobil onDecember 14 1998 which provided for broad terms and conditions whichin principle formed the basis of the long term LNG Sale and PurchaseAgreement ("SPA"). On July 311999 PLL and Rasgas signed the SPA forsale of 7.5 MMTPA of LNG to PLL. Qatar Petroleum (QP) and ExxonMobilformed a separate company Rasgas II on March 262001 for taking overthe LNG supply obligations to PLL. The LNG SPA signed by PLL withRasgas has been novated by Rasgas to Rasgas II on July 22002.5. Selection of EPC ContractorWe followed international competitive bidding procedure for selectionof the EPC contractor for the Project. In response to thepre-qualification tender we received responses from 11 parties out ofwhich 9 were pre-qualified. We issued final bidding document in October1999 inviting technical and commercial bids from pre-qualified parties.6 parties responded and their bids were received in March 2000.Pursuant to the bid evaluation process 3 consortia were shortlisted byPLL for opening of the price bids the consortium leaders being asunder:* IHI Japan* S N Technigaz France* JGC JapanIHI led consortium was finally selected as the EPC contractor by PLLand the Letter of Award was issued on 28th December 2000. The EPCcontract was signed on 19th January 2001.G. Selection of LNG TransporterAs stated above we selected consortium of RasGas & Mobil to supply LNGto us. The LNG to be supplied by LNG Supplier would be deliveredFOB at RasLaffan Port Qatar and would need to be transported to Dahejthrough specialized vassals called as LNG Tankers.For selection of LNG Transporter also we followed an internationalcompetitive bidding procedure. In responses to the pre-qualificationtender floated by PLL in February 2000 we received tenders from 7parties and all of them were pre-qualified.PLL thereafter issued the final bidding document inviting commercialand technical bids from the pre-qualified parties. 4 parties respondedand their bids were received in November 2000. Pursuant to the bidevaluation process 3 consortia were shortlisted for opening of theprice bids the consortium leaders being as under;* Mitsui OSK Lines Japan* Exmar N.V. Belgium* Malaysia International Shipping Consortium Ltd. (MISC)Mitsui led consortium was finally selected as the LNG ship owners byPLL and two Time Charter Agreements were signed on 31 January 2001 fortwo LNG tankers.