GAIL plans 2 pipeline projects

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To invest Rs 7,600 crore.

Dr U.D. Choubey
Dr U.D. Choubey

Shamik Paul C. Shivkumar

Bangalore, June 24 The board of the public sector GAIL (India) Ltd has approved a Rs 7,600-crore investment for two pipeline projects linking Karnataka to the National Gas Grid.

The GAIL Managing Director, Dr U.D. Choubey, said, “We have signed an MoU for forward linkages with end users.” The projects include linking both Kochi and Dabhol to Bangalore. GAIL has a pipeline infrastructure of 7,000 km in the country.

South focus

GAIL’s southern focus involved laying a 1,389 km pipeline from Dabhol in Maharashtra to Bangalore. This project would involve an investment of Rs 4,543 crore. The second project involved linking Kochi to Bangalore at an estimated Rs 3,032 crore.

The projects are expected to be completed between 2011 and 2013. On completion, the projects would bring at least 30 million standard cubic metres a day to Karnataka. This translated to about 1.08 mBtu a day assuming a conversion of 0.036 per cubic metre. Completion of the projects would be synchronised with the availability of the gas from the Kochi terminal, under construction by Petronet LNG Ltd and Dabhol gas terminal.

Dr Choubey said Karnataka had offered support to the project in providing land for the route. The projects though do not include acquisition of land by GAIL. Instead, it would only have a right of way through the route, on terms agreed with counterparties involved. The agreement involved payment of right of way charges to the State Government and to parties/individuals whose land was utilised for the pipeline route.

The projects would be funded through a 70:30 debt equity ratio, he added. This implied that GAIL would bring in 30 per cent of the funding requirements from its balance sheet. Discussions were under way, he said, with financial institutions and banks for meeting the remaining funding requirements. He added, “We will look for the best financing terms and the lowest interest costs.”

Gas pricing

Asked about the final tariffs, Dr Choubey said, “We have provided an indicative price to end users.” He, however, declined to reveal the price. International gas prices are ruling between $4 and $4.5/mBtu. He added that the gas pricing was still in the process of being worked out and would have to be approved by the Petroleum Industry Regulatory Board. But he added that the tariff would be worked out on the basis of the landed cost of gas at the terminals in Kochi and Dabhol. GAIL’s pricing would also be decided on the basis of a minimum 12 per cent return on equity on its investments.

The major bulk users of the gas were likely to be power and fertiliser plants. These included Karnataka Power Corporation’s planned 1,400 MW gas station in Bidadi, Mangalore Fertilisers, NTPC’s 350 MW Kayamkulam power station in Kerala and the public sector FACT Ltd.

(This article was published in the Business Line print edition dated June 26, 2009)
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