The Hindu Business Line : `Common carrier principle to get buried with Petronet India'

The players involved in the dismantling of PIL insist that it is no more than a `paper' sale as the company was never anything more than a `paper' company.

Mumbai , March 22

THE vagaries of Central Government policy, that has seen a swing over the last couple of years from common carrier principle to open access regime as a preferred mode for pipelines carrying petroleum products, will claim its victim in Petronet India Ltd (PIL).

The last nail was struck on March 11 when international competitive bids for 100 per cent equity interest in PIL or alternatively the sale of 26 per cent stake in its joint ventures were invited and the prospective buyers given time till April 10 to get back.

More than an equity sale of a financial holding company promoted by the national oil PSUs, this is turning out to be the quiet burial of assets to the tune of Rs 1,400 crore that has been created by PIL and other promoters at Vadinar-Kandla, Mysore-Hassan-Bangalore and Cochin-Coimbatore-Karur. Of this, the first is almost defunct, the second is incurring heavy losses and cannot repay interest on loans, the third is facing the prospect of getting endangered by way of competition from one of its own promoters.

The players involved in the dismantling of PIL insist it is no more than a `paper' sale as the company was never anything more than a `paper' company.

However, the stature of PIL as a `paper' company takes a knock in view of the huge debt of about Rs 875 crore that has been accumulated by three of its functional joint ventures. While the biggest exposure has been by Petronet MHB (Mysore-Hassan-Bangalore) Ltd with Rs 550 crore, followed by Petronet CCK (Cochin_Coimbatore-Karur) Ltd with Rs 240 crore, Petronet VK (Vadinar-Kandla) Ltd has an exposure of only Rs 72 crore. As many as 16 banks that extended loans to the three projects are keeping their fingers crossed.

Set up in 1997 , PIL was to become India's mainstay pipeline network company, carrying petroleum products from various refineries to consumption centres. All that changed in November 2002, when the Centre notified a new Pipeline Policy whereby the rationale behind setting up PIL stood nullified.

The case of the Central India pipeline that proved to be a severe setback for PIL saw the interests of the infrastructure company clash with that of Reliance Industries. Several pipelines that are being planned now run parallel to each other as `common carrier' principle has been shown the door.

The result has been that viable pipeline projects such as theone between Vadinar and Kandla that includes a high cost sub-sea segment has been turned into an unviable one. Similarly, the pipelines considered unviable by PIL such as Chennai-Tiruchi-Madurai as it was in direct competition with its own CCK line soon found a taker in PIL's own promoter IOC.

"Clearly, this is an instance of waste of public money as these `strategic' pipelines are coming up in a haphazard manner with little thought to tapping the full potential of the existing infrastructure from a national perspective. Thus, oil companies are planning to reach their consumers with their own pipelines with little thought to financial viability on a stand-alone basis," an analyst tracking petroleum sector infrastructure said.

Meanwhile, the likely buyers of equity in the three joint ventures that are functional — Petronet VK Ltd, Petronet CCK Ltd and Petronet MHB Ltd — are IOC, BPCL and ONGC/HPCL. There is no denying that anybody can pick up 100 per cent equity in PIL based on strategic interests, but seems quite unlikely, given the debt component that would go with these projects.

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