With this, a big step forward has been taken for the 5.6-million tonne per annum (mtpa) LNG project. GPLNG is the largest of the six forthcoming LNG projects in India and among the largest worldwide.

When contacted, Sumitomo Bank's India head and head of south Asia's international finance division, Bharat Kaushal, confirmed having signed the deal.

This is the first deal signed by Sumitomo as part of its $ 1-billion `mandate' signed with the Gujarat government for arranging funds for an entire gamut of infrastructure projects, ranging from oil, gas and power to roads, ports, airports and telecom. The `mandate' was signed last Wednesday.

As part of the mandate, a joint working group comprising top brass from Gujarat Industrial Investment Corporation and Gujarat Infrastructure Development Board will be set up soon. The panel will also have ministers and secretaries from the key ministries and will function like a single window system.

The mandate is similar to the $ 1-billion pact signed by the Asian Development Bank (ADB) with the state government recently. ``The mandate gives us an exclusivity over financial advisory role for structuring of the projects and subsequently, the right to match the most competitive bid for the lead arranger role if we wish to,'' Kaushal told The Financial Express.

Sumitomo has also signed a similar $ 1-billion MoU with the Maharashtra government. As part of that mandate, a unique $ 100-million deal is in the pipeline for a project with the water supply and sewerage board of the state.The bank has been closely monitoring several states. ``But it was only after the initiative of the Gujarat chief minister Keshubhai Patel that we decided to sign with Gujarat,'' Kaushal said.

It may be mentioned here that the Pipavav project is the largest of the six forthcoming mega LNG projects in the country. Following Sumitomo's appointment, work is expected to commence soon on arranging the finances for the project.

The port is ready and the work on LNG terminal is underway. Indications are that Pipavav will also be the first LNG project to come up and is likely tostart by the targeted deadline of mid-1999, sources indicated.

For much of the 5.6 million mtpa, letters from offtakers are already in place while requests for consumption are also in place, say sources. The project is likely to gain an early movers' advantage. By the time other projects come up, including Petronet LNG, GPLNG should have gained an advantage, experts pointed out.

Giving details of Sumitomo's role in the project, Kaushal said: ``We will do the finance structuring, look at the debt-equity ratio and do cash flow remodelling. We will accordingly do maximum possible hedging to minimise the forex risk while aiming for the optimal returns.''

However, since a lot of trade will be in foreign currency, there will be a natural hedging advantage as happens in the oil trade. ``It will be penny wise, pound foolish if we just look at the interest rate differential between rupee availability and the foreign exchange because that is only a 6 to 7 per cent minuscule component as compared to devaluation risk which can go up to 10 to 20 per cent, particularly in the light of caution arising out of the south-east Asian crisis,'' he said.

However, sources said that the cost of Pipavav project may escalate by another $ 300 million, taking up the total project cost to $ 1 billion, once the purchase price of LNG is finalised.