Qatar Petroleum keen to buy stake in Petronet LNG

Qatar Petroleum, the Persian Gulf country's state-run energy firm, has majority stakes in RasGas and QatarGas that along with other liquefied natural gas (LNG) suppliers in the world compete to sell fuel to India.

New Delhi: Qatar Petroleum has expressed interest in buying a 5.2 percent stake in Petronet LNG Ltd, a potentially conflict of interest proposition as it will give the gas supplier a vantage position in India's largest fuel importer.

Qatar Petroleum, the Persian Gulf country's state-run energy firm, has majority stakes in RasGas and QatarGas that along with other liquefied natural gas (LNG) suppliers in the world compete to sell fuel to India.

If Qatar Petroleum (QP) picks up 5.2 percent stake as well as board position in Petronet, it will give the company an undue advantage over other suppliers as it will be privy to price and other negotiations, sources in Petronet's promoter firms said.

This will possibly be the first instance of a LNG supplier picking up stake in an importing firm.

Sources said Asian Development Bank (ADB) wants to sell its 5.2 percent stake in Petronet since last year.

Petronet, which is registered as a private company even though public sector oil firms hold 50 percent stake and Oil Secretary is its Chairman, has approached QP's 100 percent subsidiary Qatar Petroleum International offering ADB's stake.

The PSUs -- Indian Oil, Oil & Natural Gas Corp, Bharat Petroleum and GAIL India -- had previously evinced interest in buying the ADB stake but the Oil Ministry blocked the move as it would have turned Petronet into a public sector company.

It was then offered to Qatar Petroleum International.

But the stake being picked up by QP will lead to a potential conflict situation, sources said.

RasGas, in which QP holds 70 percent stake, supplies 7.5 million tonnes of LNG on a long-term contract to Petronet. It remains a potential supplier for the new terminals that Petronet is building at Kochi and east coast and a board position may give it an undue advantage, they said.

In fact, RasGas had in the contract to supply 7.5 million tonnes LNG promised to give 5 percent stake to Petronet or its nominee in the liquefication plant in Qatar.

This clause was the same that RasGas had promised Korea's KoGas in a LNG supply deal.

Article 30.7 of the agreement with Petronet promised the stake at "no premium" but RasGas reneged on its commitment and demanded a premium from ONGC, which was nominated to take the stake. The talks broke down on the premium asked, sources said.

Sources said Qatar Petroleum getting stake is like vendor picking up a board position in a company that gives out contracts.

One seller on board will be disadvantage to other sellers, they added.

Qatar's Minister of Energy & Industry Mohammed bin Saleh Al-Sada on November 4 wrote to Oil Minister M Veerappa Moily acknowledging Petronet's approach and said "Qatar Petroleum International (QPI) and ADB, with Petronet support have already engaged in preliminary evaluatory discussions."

"I have personally endorsed QPI to move forward as it will be a milestone for strengthening mutual cooperation between our countries," he wrote.

While IOC, ONGC and BPCL quickly retracted from their decision to buy ADB stake after the Oil Ministry diktat, GAIL has continued to stick to its guns that promoters should be allowed to buy the 5.2 percent stake.

"In light of GAIL's stance, there could be a possibility that ADB will not be able to proceed further in selling its shares to QPI," the Qatari Minister wrote.

"I urge the Indian government and look forward to Your Excellency's assistance to help materialise this deal at the earliest in the interest of the mutual business relations between our nations," he told Moily.

The ADB had on August 23 last year offered to sell its 5.2 percent stake in Petronet, in which GAIL, IOC, BPCL and ONGC hold 12.5 percent stake each and the right of first refusal.

Last year, the boards of all the four promoter companies approved exercising the pre-emption right over ADB stake and proposed cash buyout of the multilateral lending agency's interest.

However, the Ministry, whose Secretary is the Chairman of Petronet, vetoed the proposal at a March 26 meeting of Petronet board, sources said.

"Keeping in view the specific approval of the Cabinet on restricting the aggregate Government/PSU participation to 50 percent of paid up capital for providing the desired flexibility to Petronet LNG Ltd to operate in a dynamic LNG import market, the existing shareholding structure in the context of PSU participation, should be retained," minutes of the March 26 meeting had stated.

If the ADB stake goes to state firms, Petronet would come under scrutiny of official auditor CAG and Central Vigilance Commission (CVC) because of PSU holding exceeding 50 percent, something the company and the Ministry were opposed to.

Gaz de France International (GDFI) holds a 10 percent in Petronet and also has the right of first refusal over ADB's stake. But the French energy giant has decided to waive this right off.

The ADB had in fact first proposed to exit Petronet in 2008, but then company CEO Prosad Dasgupta was in favour of a third party like Chevron or steel baron Lakshmi Mittal's group buying the stake instead of the four promoters.