Tuesday, January 07, 2014

Gas 'dreams': Failure to get eco-clearance for submarine pipeline costs Gujarat PSU another Rs 760 crore

By Our Representative
Failure to get forest and environmental clearance for laying down Rs 826 crore submarine pipeline to tap the gas found off Andhra Pradesh coast has cost former bluechip public sector undertaking (PSU), Gujarat State Petroleum Corporation (GSPC), dear. Latest information available from an internal note has suggested that the GSPC will have to shell out a total of around another US dollars 123.66 – which comes to around Rs 760 crore – as “standby” or “idle” charges to Punj Lloyd Ltd (PLL), the top multinational contractors who were hired in an international bid, to lay down the submarine pipeline in 2011.
The note, which is in possession of Counterview, said that the total amount would have to be paid “expeditiously”, as the contractors are unable to continue their work because of the failure of the GSPC to get necessary clearances on time, as required by the terms of agreement. “PLL has already submitted communication indicating their standby claim. Early resolution of the issue is necessary to preempt any further claims on account of standby”, the note, put up before a recent board meeting of the GSPC, said. Sources added, failure to get necessary clearances has delayed the completion of the project -- scheduled to end in April 2013 -- by at least a year.
Already, the note says, the GSPC has paid PLL an amount of 71.25 million dollars (or Rs 440 crore). However, insiders said, as the money was disbursed without approval of the GSPC board, there was considerable commotion in the Gujarat bureaucratic circles. “Hence, GSPC managing director Tapan Ray decided to approach the GSPC board for getting an approval for the rest of the amount, which comes to around Rs 44.41 million dollars. The board, which met recently, was “undecided” on the matter, and asked a committee under retired IAS bureaucrat MM Shrivastav to look into the matter and decide on the matter.
The note asks the GSPC board to pay up at least 15 million dollars of the amount still a final decision is made. It says, it should be an “interim measure” till the “final settlement is arrived at”. In the meanwhile, the necessary clearances would be taken. Arguing in favour of the payment, the note said, payment to the contracts is “necessary” because 72 per cent of the work in tapping gas from the Deendayal (West) field off Andhra coast is already over, and gas’ commercial production is pending completion of the submarine project. It has expressed the apprehension, at stake is 2.2 billion dollars investment in tapping gas.
Arguing that the “submarine pipeline is the only interconnection” between the GSPC’s Deendayal fields and the onshore facilities, which would refine the gas and send them into the national grid, the note say, “rescinding the contract at this stage” would imply a new tender would have “delay” the commercial production by another 9-12 months to float. “Nature of the work calls for international competitive bidding”, it points out, adding, there always apprehension that “sufficient offers may not come”. Further, it adds, “dispute resolution with PLL” may prove to be “messy, time consuming and costly.”
The GSPC also expresses the apprehension that the overall cost of maintaining the infrastructure set up by the GSPC for commercial production of gas may go up drastically to 300 million dollars per annum. This includes the “additional burden of fixed cost of already installed capacities, interest payment on borrowed capital, operation and maintenance cost” and so on. On the other hand, “assistance to PLL to mobilize resources would facilitate completion of pipeline project by March 2014.”
The GSPC's Rs 760 crore blow came close on the heels of its formal decision to withdraw from its most important overseas adventure – Egypt. The decision was taken as it was proving to be a very costly affair. Deeply under debt of Rs 8,000 crore, the exploration in Egypt would have cost the GSPC another Rs 5,000, with no surety about possibility of getting gas or oil. It was the first major step to bring out GSPC from the financial mess it is in right now.
Interestingly, the GSPC not just failed to get environmental and coastal regulatory zone (CRZ) clearance for the submarine pipeline but also its onshore gas terminal, a 20 MW captive power plant, 20 underground gas pipelines along with optical fibre cable (OFC), and 10 inches effluent disposal pipeline -- of which it badly needed for commercial production of the gas it struck several years ago. Some of these facilities were to pass through CRZ area of Yanam-Puducherry along the Andhra Pradesh coast. 
It simultaneously failed to get clearance for its offshore process-cum-living quarter platform in at the Deendayal block in the KG Basin in Andhra sea, where the top PSU had claimed in 2005 to have found 20 trillion cubic metres (tcf) of gas -- a claim which has been quashed, as total gas available is just 2 tcf, of which one third is recoverable.
In May last year, the environmental appraisal committee (EAC) had asked the GSPC to “defer” construction commercial facilities until certain conditions were fulfilled. It refused to give blanket CRZ clearance for laying down underground gas pipeline, optical fibre cable (OFC), an effluent disposal pipeline, and process-cum-living quarter platform and captive power plant – all of which would require he CRZ clearance, as these facilities are to be part of the Yanam-Puducherry coastal region. The GSPC wanted all these to be cleared together but the EAC ruled against it, asking the GSPC to make separate applications.
The EAC wanted the GSPC to submit: (1) details of the critical environmental issues identified during laying of pipeline, (2) environment clearance for enhancement of captive power plant, under consideration of environmental appraisal committee (EAC) of the thermal committee, which has also sought examining the requirement of wildlife clearance in view of Coringa Sanctuary located in 2.5 km distance, and (3) the plan of the pipeline to pass through the mangroves. Based on these observations, it recommended to defer the proposal.

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