The Asian Development Bank (ADB) and KfW are to fund the expansion of a LNG receiving terminal owned and operated by Petronet LNG in India via a US$169mn financing package equally divided between the two development banks.

ADB is providing an Indian rupee denominated loan of Rs6.65bn (US$169mn), while KfW risk participates in 50% of the principle and interest of the ADB loan.

It is ADB’s second deal where the bank arranges a facility where foreign institutions without an Indian rupee funding capacity can assist in projects requiring local currency financing. The previous deal was signed in April 2007 for Rs2.05bn to Tata Power Company, with DZ Bank risk participating.

Petronet’s terminal is located in Dahej in Gujarat and Petronet supplies approximately 25% of the total gas supplies in India and is operating at a capacity of 6.5mn metric tons per annum against the installed capacity of 5mn metric tons per year.

In response to India’s growing energy requirements, Petronet is already expanding the capacity of the Dahej terminal with the aim of doubling production by 2009, and it is developing another LNG facility in Kochi in Kerala.

The development of LNG production is seen as essential in a country that is dependent on coal and oil for 85% of its energy requirements. Although India has significant natural gas reserves, its domestic supply can not keep up with demand and the country must import gas either in the form of LNG or via a pipeline.

ADB has been actively supporting Petronet since 1997 when it provided technical assistance to India for a study exploring the setting up of an LNG terminal via a public-private partnership.

Following this study, four Indian energy groups: GAIL (India), Indian Oil Corporation, Bharat Petroleum Corporation, and Oil and Natural Gas Corporation formed Petronet. Gaz de France also joined as a major shareholder to provide technical support while ADB injected equity into the firm to secure a 5.2% stake.