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Pratim Ranjan Bose

Kolkata, Dec. 8 Indian Oil and Adani Energy Ltd on Monday entered into a memorandum of understandingfor setting up 50:50 city gas distribution joint venture, according to sources. Adani Energy is the gas distribution arm of the Gujarat-based Adani group.

City gas distribution (CGD) includes supply of compressed natural gas as auto fuel and piped natural gas for domestic, commercial and industrial use.

The joint venture – expected to be incorporated this fiscal – will undertake CGD activities on behalf of both the companies in Uttar Pradesh, Haryana, Rajasthan, Punjab and Madhya Pradesh. Expansion in other States may also be considered on mutually agreed terms and conditions.

Apart from bidding for new CGD circles with the Petroleum and Natural Gas Regulatory Board (PNGRB), the IOC-Adani venture will also acquire Adani’s interests in CGD sector at Lucknow, Noida and Khurja in UP, Faridabad in Haryana and Udaipur and Jaipur in Rajasthan.

According to sources, Adani entered in all these centres on the basis of state approvals before PNRGB came into being and invested approximately Rs 150 crore in creating the supply infrastructure, especially in Lucknow, Noida and Faridabad. Operations, however, could not be initiated in any of these centres due to legal tangles with the Central nominees.

Adani Energy, however, will continue to manage its existing Rs 400-crore CGD operations in Ahmedabad and Vadodara in Gujarat.

According to sources in both the companies, the pact will bring rich dividends to both IOC and Adani. A case in point is Lucknow where Green Gas (a venture between IOC and GAIL) and Adani Energy both are struck with their idle investments. As IOC may now act as a plank between the two rivals, a mutually beneficial solution is expected to evolve soonin Lucknow.

Again, IOC may gain from Adani’s investments (backed by the UP Government) in the lucrative Noida and Faridabad markets. The company is currently fighting court cases for access of natural gas for its network.

According to sources in Adani group, the company was expected to start operations at Faridabad shortly based on a recent court verdict in its favour. The claim, however, could not be verified.

The presence of IOC may bolster the joint venture’s prospects of sourcing natural gas, an area where Adani was visibly lacking. Also, Adani will now be able to access IOC’s existing retail network for distributing CNG in the identified States. Similarly, Adani’s proposed investment in setting up LNG terminal with GSPC latest by 2011-12 may come to the joint venture’s aid.

Apart from Adani, IOC has already entered into similar arrangements with a number of partners, including GAIL and Reliance, for rolling out CGD business in different regions of the country.

More Stories on : Alliances & Joint Ventures | Petroleum | Channels and Franchises | Power

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