The Petroleum and Natural Gas Regulatory Board (PNGRB) has scrapped the tender for a trunk pipeline for evacuation of gas from the proposed floating LNG terminal (FRSU) of Hiranandani Group near Contai in West Bengal. The terminal, scheduled to become operational in March 2020, with its pipeline network is designed to cater to the demands of both India and Bangladesh.

Hiranandani group outfit H-Energy Private Ltd (HEPL) emerged the lowest bidder for the 705-km pipeline project on May 12. On July 15, the tender was annulled, citing ‘viability’ concerns.

“This is the first instance where the board has received such a type of bid in respect of a natural gas pipeline. Since current regulations have no checks to avoid such bid outcomes, a review of the regulation and the bid document shall be undertaken to facilitate rebidding of the pipeline,” the order said.

The plan was that one arm of the pipeline snaking through Bengal and after meeting the local demand, would extend up to Bangladesh. The other arm would reach Paradip connecting industrial hubs in Odisha and the Dhamra port, where the Adani Group is setting up an LNG terminal.

Adani and the State-owned IndianOil (IOC), which has booked re-gassification capacity at the five million tonne per annum Dhamra terminal, participated in the biding process.

Questions galore The Regulatory Board’s decision has raised many questions.

First, PNGRB held that H-Energy’s low bid of one paise per mmBtu (million metric British thermal unit) makes the project unviable. Apparently, this is to stop H-Energy from cross-subsidising pipeline operations with revenues from other business verticals.

Sources, however, point out that the same Board approved nearly two-dozen city gas distribution (CGD) projects based on identical bids. They also wonder if the transmission rate holds the key for viability of pipeline projects, as most projects approved by the regulator in the last five-six years have remained on paper.

Many observers level a charge of conflict of interest against the regulator as many PNGRB executives, including some key personnel evaluating the tender, were on deputation from IndianOil.

PNGRB response In a written response, Arvind Kumar, Additional Advisor with PNRGB, denied this charge, saying: “All officers of the Board... are on deputation from different PSUs under the Petroleum Ministry, since its inception.” he said.

On city gas projects, he said, the authorisation regulations for CGD and natural gas pipeline are “different”. In CGD, the successful entity gets marketing exclusivity. And, the bid tariff is applicable for the third party only and that too after the marketing exclusivity ends only for 20 per cent of the volume.

‘Unfair treatment’ A H-Energy source, however, alleged unfair treatment. “The bid process was annulled by the PNGRB well after H-Energy was technically qualified, our price bid was opened and our composite score was found to be the highest. Most importantly, the yardstick used for the annulment that is ‘standalone economic viability’ is neither mentioned in the tender document nor in any existing regulation,” a H-Energy source told BusinessLine .

Sources in the West Bengal government also expressed concern at the development that would cast a shadow on the timely implementation of the LNG project.

“The ₹9,000-crore project (including pipelines) is an important investment proposal for the State. Cancellation of the tender is a major setback to the State,” said a senior West Bengal government official.

West Bengal doesn’t have access to natural gas.

The decade-old proposal by GAIL India to connect Haldia with the HBJ pipeline has not seen any progress. In a recent decision, GAIL decided to connect the pipeline to Adani’s Dhamra terminal and this to be followed by an extension to Haldia in the third phase.

The Contai terminal being a crucial plank of the Narendra Modi government’s initiative to enhance energy cooperation with Bangladesh, any delay in project implementation will have international ramifications.

Armed with a go-ahead from the Ministry of External Affairs, H-Energy promised supply of one million tonne of re-gassified LNG to an upcoming State owned power project in South Bangladesh bordering Bengal. The power project couldn’t be fed gas from Bangladeshi sources in the East due to infrastructure inadequacy.

A gas sales agreement in this regard is at an advanced stage of finalisation.

Also, authorities in both the countries are working on a tax regime to make the trade a win-win and also exploring means to create an international grid connecting northern part of Bengal through Bangladesh.