With Swan Energy, Tatas seek foothold in LNG infrastructure

The unit's cost is Rs 5,600 crore and Swan Energy is open to diluting its 74% stake in the project

Swan Energy’s announcement on Wednesday of Tata Realty and Infrastructure showing interest in its liquefied natural gas terminal took bankers and consultants by surprise.  

“We have to go through a due-diligence process (for Swan deal). We have been looking at opportunities in the ports and terminals business. We have similarly expressed our interest earlier in a container terminal in Sri Lanka,” said Sanjay Ubale, managing director and chief executive officer, Tata Realty and Infrastructure.

In a stock exchange filing, Mumbai-based Swan said it had “received an expression of interest from Tata Realty and Infrastructure, showing its willingness to invest up to 10 per cent of the equity” in Swan LNG, the company setting up the floating regasification unit near Jafrabad in Gujarat.

The unit’s cost is Rs 5,600 crore and Swan Energy is open to diluting its 74 per cent stake in the project.  

The overture from the Tatas follows Swan Energy’s recent announcement raising its authorised capital from Rs 5 lakh to Rs 2,000 crore. Swan Energy Managing Director Nikhil Merchant could not be reached for comment.

According to an earlier agreement, Swan Energy holds 51 per cent in Swan LNG, Exmar Marine 38 per cent and Gujarat State Petroleum Corporation 11 per cent. Exmar Marine is in talks with Vopak for selling its floating and regasification unit business and Swan Energy might end up holding 74 per cent in the joint venture company. The Gujarat government is set to increase its stake to 26 per cent through the Gujarat Maritime Board. In any case, Swan Energy will not reduce its stake in Swan PNG below 51 per cent.

For Tata Realty and Infrastructure, this could be its first investment in an LNG project. “LNG is a complex play and needs a lot of technical expertise. The group may be interested in this specific asset for any supply agreement that Swan has already signed up,” said an investment banker. 

Swan PNG has tied up initial supply agreements for 4.5 million tonnes per annum with Gujarat State Petroleum Corporation, Indian Oil Corporation, Oil and Natural Gas Corporation and Bharat Petroleum Corporation. With sourcing of LNG tied up by its customers, Swan LNG will essentially act as a tolling terminal.  

Ubale did not rule out the option of using this investment as an entry point in the LNG business. “It is of interest to us because it is pretty much a monopolistic kind of business. Once the forward linkages are tied up, it becomes a good infrastructure play. At the moment we have only expressed our interest,” Ubale said, when asked about investing in future projects.

To be commissioned in January 2019, the Jafrabad LNG port will have a 5-mt receiving terminal with one jetty-moored floating regasification unit.  Swan PNG has finalised the design of the unit with a South Korean firm and is expected to take delivery by December 2018. 

The Tata move is the first deal to be announced since Tata Consultancy Services Chief Executive Officer Natarajan Chandrasekaran was named the new chairman of Tata Sons. “All Tata companies are sufficiently empowered to make their own decisions. These talks have been in the making over the last one month or so,” Ubale clarified.

Swan Energy, too, has had its share of controversies. It was chosen as a strategic partner by the Gujarat government in GSPC Pipavav Power but the move was opposed by Congress leader Shaktisinh Gohil in the Gujarat High Court. Swan Energy had earned the right to sell close to 70 per cent carbon credits from the project, which would have fetched it much more than what it would have paid for the stake. Eventually, Swan Energy pulled out of the deal.