PetroMin pulls up OMCs, GAIL

The petroleum ministry has pulled up both GAIL and the cash-short oil marketing companies (OMCs) for bidding to get capital-intensive gas pipeline projects at a time when gas availability is uncertain.

Recently, the OMCs had bid for three pipeline projects worth Rs 15,000 crore (Rs 150 billion) through a consortium with GSPC and bagged all.

The ministry has asked the OMCs to again approach their respective Boards for fresh approval before taking on such commitments.

The decision was taken at a meeting last month chaired by additional secretary Sudhir Bhargava and attended by representatives of GAIL and the three OMCs - Indian Oil, Bharat Petroleum and Hindustan Petroleum.

"Since public money is involved and the pipelines have long gestation and are cash-intensive, the Boards of the companies must carefully examine and be convinced about gas availability before committing funds for projects. Ideally, trunk gas pipelines should synchronise with the gas source to avoid idling of resources," the ministry observed during the meeting.

It wants the OMCs to carefully re-examine the assumptions of gas availability and the effect of a lower availability on the project's internal rate of return (IRR).

The Petroleum and Natural Gas Regulatory Board last year invited bids for three trunk pipelines - Mallavaram (near Kakinada in Andhra Pradesh)-Bhopal-Bhilwara (Rajasthan)-Vijaipur (near Guna in Madhya Pradesh; Mehsana (Gujarat)-Bhatinda (Punjab); and Bhatinda-Jammu. A GAIL-EIL consortium and the GSPC-OMCs

one had bid for the first pipeline.

The Adani-Welspun combine and GSPC-OMCs had bid for the second pipeline. And, GAIL-EIL, Adani-Welspun and GSPC-OMCs had bid for the third.

Currently, the domestic gas pipeline business is dominated by GAIL and Reliance Industries Ltd.

However, the OMCs-GSPC consortium outbid GAIL in these pipeline bids.

The ministry observed that the proposed gas pipeline projects involve huge public investments while the sources of gas to feed these pipelines are still uncertain.

"While upstream discovery or an LNG terminal can lead to gas pipelines, vice versa does not apply," the ministry noted.

City gas caution, too

GAIL Gas, a subsidiary of GAIL, the OMCs and upstream companies ONGC and Oil India have participated in the bidding rounds for city gas distribution (CGD) projects. GAIL Gas has won CGD projects in a number of cities.

"There is a long gestation for capacity build-up of CGD projects. Recent experience has shown that CGD projects were not ready to draw domestic gas when gas availability was there in 2009. Most CGD entities have not been able to sign agreements even for allocations made in 2010. While participating in CGD projects, all PSUs must examine the viability of such participation on the basis of LNG availability," the ministry has said.

The stance is at odds with the PNGRB aim to establish a national gas grid and expand CGD to 200 cities by 2015.