Mumbai, April 30: The revised Central India pipeline (CIPL) proposal submitted by Reliance Petroleum and Indian Oil is threatening to snowball into a controversy on the future of Petronet India. News in oil industry circles is that other companies like Bharat Petroleum Corporation and Hindustan Petroleum Corporation will also adopt the same posture as IOC and RPL in executing pipeline projects on their own. "There is no reason why the same rules should not apply to all companies," sources say.The IOC-RPL combine had, at a recent meeting with the ministry of petroleum and natural gas, suggested a new model for their mega pipeline proposal originally intended as a joint venture of Petronet, IOC, RPL, BPCL and Essar Oil. The revised draft has relegated Petronet-CIPL to a company on paper with a paid up capital of Rs 50 crore which would award the project on a BOOT (build-own-transfer-operate) basis to a joint venture of IOC and RPL.
If approved by the Centre, the move could spawn situations where HPCL will take up construction of the Mangalore-Bangalore pipeline on its own without any participation by Petronet. The same would apply to BPCL should it also decide to do this for the Chennai-Tiruchi-Madurai pipeline. Petronet's stake in both projects is 26 per cent as is the case with all others which come under its umbrella, inclusive of CIPL.
The objective of creating Petronet was to promote the "common carrier principle" for these pipeline joint ventures which would be viable, independent commercial entities. As per the business plan drafted two years ago, these companies would be project financed on a stand-alone basis on the strength of their cash flows.
As far as CIPL was concerned, IOC and RPL reasoned that the structure needed to be changed for the following reasons:
As the cost of the project was Rs 5,148 crore, even with a debt, equity ratio of 3:1, Petronet's contribution for its 26 per cent stake would be Rs 335 crore. This, according to IOC and RPL, is a particularly hefty figure considering that Petronet has forked out barely Rs 110 crore for three pipelines.
Essar Oil's current financial crisis will preclude the company from paying its 11 per cent equity contribution of Rs 140 crore.
Cabinet approval would need to be sought by BPCL and IOC for investing 475 crore in CIPL (26 per cent from IOC and 11 per cent from BPCL).
Difficulties faced by Petronet in raising debts for its existing pipeline projects.
Reluctance by the promoters of these projects to sign "take or pay" contracts.Sources in banks and financial institutions say that most of these arguments are baseless. They claim that the shareholders of Petronet - State Bank of India, IL&FS, ICICI, RPL, IOC, BPCL and HPCL - would comfortably raise Rs 335 crore as equity in CIPL. Essar Oil has not been included as it is yet to pay up the dues for its ten per cent stake in the pipelines company.
Project cost dow
IOC and RPL, in their proposal for CIPL, have estimated an enormous cost saving of around Rs 1,500 crore for the project. This is because the spur lines planned to Indore, Bhopal and Chittorgarh have now been dropped with the route now being from Jamnagar to Koyali and Ratlam with a northern branch to Kota and a southern branch to Itarsi and Nagpur. The revised cost is now Rs 3,629 crore, down from the original Rs 5,148 crore.
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