Indian Power Producer NTPC Seeks Termination of Gas Deal with GAIL

India’s biggest state owned power producer NTPC is seeking to terminate a long-term supply contract it has with GAIL India for imported natural gas, Bloomberg reported last week.

NTPC has stated that the imported fuel is too expensive to be used in power generation and it is not able to sell the power it generates from the fuel. The power producer signed a 20-year contract GAIL in 2009 to buy 2 million metric standard cubic meters a day of gas, sources told Bloomberg.

NTPC’s current offtake has been less than 10 percent of its contracted volume, forcing GAIL to levy so-called take-or-pay penalty charges.

According to Bloomberg, the cost of power generated from GAIL’s gas is about 7 rupees per kilowatt hour which is more than double the 3.18 rupee average price at which NTPC sold power in the year to March 31, and more than three times the current national average spot price. Indian regulations require electricity retailers to buy power from the cheapest sources available, which makes it difficult for a generator to sell more-expensive electricity.