Saturday, December 07, 2013

Gujarat PSU laying down cross country gas pipeline sans tieup, banking on LNG terminal off Andhra coast

By Rajiv Shah
The Gujarat State Petronet Ltd (GSPL) – the foremost subsidiary of the state’s former bluechip public sector undertaking (PSU), Gujarat State Petroleum Corporation (GSPC) – is not sure about the source of the liquefied natural gas (LNG) which should flow into the 4,000 km long gas pipelines it is currently involved in laying down between Kakinada, off Andhra Pradesh coast, and Bhatinda in Punjab and beyond. A well-placed source in Gandhinagar Sachvivalaya has told Counterview that the GSPL, which is laying down the pipeline at the cost of Rs 13,700 crore, “as of now has no captive gas to bank upon that could flow right up to Punjab.”
A top state official, speaking on condition of anonymity, said, “Reliance, which was involved in gas exploration off Andhra Pradesh coast, is not in a position to supply gas, as it was earlier. It is not sure about its actual reserves in the KG basin, hence it has sharply curtailed its production. Worse, GSPC’s own estimation of getting about 20 trillion cubic feet (tcf) of gas from it is exploring in the KG basin, thus becoming India’s foremost gas giant, has gone haywire.” It is well known that, instead of 20 tcf, only 2 tcf gas has been actually found, and of this just about one third is commercially usable.
The official said, while the GSPL is laying down the cross-country pipeline, involving several states, including Andhra Pradesh, Madhya Pradesh, Maharashtra, Gujarat, Rajasthan, Haryana, Punjab and J&K, “there is still no tieup in place to receive gas from any source.” He added, “We had laid our hope on the GSPC’s explorations, one reason why we went in for aggressive bidding against the Central PSU Gas Authority of India Ltd (GAIL). But as very little commercially viable gas has been found in KG basin, the question of GSPC supplying gas on a long-term basis appears a thing of the past.”
In view of this, the official said, now the GSPL may have to go in for an agreement with the LNG terminals under implementation along the Andhra Pradesh coast. “These LNG terminals will import gas, and the pipeline will take its liquefied form to Gujarat, on one hand, and to Bhatinda, on the other”, the official said, adding, “Large parts of the gas pipeline is under implementation. Negotiations are on with the Haryana government to lay down the pipeline up to Bhatinda in Punjab.” Independent observers wonder whether pipeline will be economically viable now.
Meanwhile, reports say that plans are being worked out for the development of the Andhra LNG terminal at Kakinada. In April 2013, Shell and Kakinada Sea Port Ltd (KSPL) signed the Port Services Agreement, setting out the commercial arrangements underlying the development and operation of the required port facilities for the entire duration of the project. Shell is eyeing the project as it believes India is an “important market for LNG and the states of Gujarat and Andhra Pradesh are key markets for gas in India”, sources opine.
The project, which was conceived by Shell and its partners in 2011, is now rapidly advancing to fruition. The technical scope development and associated execution plan is nearing its completion. The project is progressing as per plan and is on track to potentially becoming the first LNG import terminal on the East Coast. The terminal will start with a capacity of up to 5 million tons per annum (mtpa) and is designed for easy expandability to 10+ mtpa to meet the surging demand for gas in the region.
The gas regulator, Petroleum and Natural Gas Regulatory Board, awarded a Letter of Authorisation (LOA) to a consortium led by GSPL for developing Rs 12,500 crore natural gas pipeline in June 2011. GSPL (with 52% stake) in consortium with Indian Oil Ltd (26%), Bharat Petroleum Company Ltd (11%) and Hindustan Petroleum Company Ltd (11%) had participated in the bidding process. The bid submitted by the consortium has emerged as the most favourable bid in all the three pipeline projects -- Kakinada (Mallavaram) - Bhilwara (1585 kms) pipeline, Mehsana - Bhatinda (1670 km) pipeline and Bhatinda-Jammu-Srinagar (740 km) pipeline (click HERE).
A year after the LOA, GSPL went for financial closure for a syndicated loan of Rs. 5,080 crore with a consortium of 14 banks for its upcoming Mallavaram-Bhopal-Bhilwara-Vijaipur pipeline project. Tapan Ray, MD, GSPC, signed the agreement with the consortium led by Bank of India. Other banks in the consortium include Punjab National Bank, Canara Bank, Union Bank, Corporation Bank, United Bank of India, Syndicate Bank, Indian Bank, Punjab & Sind Bank, Federal Bank, State Bank of Mysore, Dena Bank, Allahabad Bank and Vijaya Bank.
The GSPL's uncertainty comes despite the financial closure, which happened in June 2012, and environmental clearance to lay down the pipeline this year. A senior GSPL official has been quoted as saying that the GSPL received environmental approval from the Union ministry of forest & environment in the last week of April 2013. The official said that they have also received the Right of User (RoU) for land for laying the pipelines from most of the states -- from Andhra Pradesh, Maharashtra, MP, Gujarat, Rajasthan and Punjab. Haryana is the only state which has not granted RoU.

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