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GAIL's 1,724-km Surat-Paradip natural gas pipeline project terminated

Shine Jacob/New Delhi 14 Mar 18 | 08:01 PM

GAIL India logo | Photo: Wikipedia

The Petroleum and Natural Gas Regulatory Board (PNGRB) has terminated the Surat-Paradip natural gas pipeline project by GAIL India owing to delays. The regulator has also ordered encashing the state-owned firm’s entire performance bank guarantee of Rs 200 million.

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The proposed 1,724-kilometre project, touted as the first pipeline in the country connecting the eastern and western coasts, would have seen an investment of Rs 60 billion.

In its order dated March 13, the downstream regulator said the ground progress made in the project by the company was “nil" even after six years.

Under the terms of internally financed projects, an entity is supposed to submit its detailed feasibility report and financial plan within 120 days of authorisation, and GAIL failed to do so. Following this, in September 2015, the PNGRB ordered encashing 25 per cent (Rs 50 million) of the performance bond submitted by GAIL for failing to achieve financial closure. GAIL had got the authorisation to lay the pipeline in April 2012.

“As per provision 16 (1) c, the entity shall make good the encashed performance bond, within a week of encashment of part of performance bond, failing which the remaining amount shall also be encashed and authorisation of the entity terminated," the order said.

The Board concluded that GAIL had failed to perform its obligations under the terms and conditions of the authorisation with respect to refurbishment of the encashed amount of Rs 50 million for the project. Hence, it added, the remaining amount would be encashed and the authorisation terminated.

The pipeline was supposed to start from Mora in Gujarat and would terminate at Indian Oil Corporation's Paradip refinery. It was to carry imported natural gas from Dahej and Hazira liquefied natural gas (LNG) terminals, crossing cities like Jalgaon, Nagpur, Raipur and Bhubaneswar.

The PNGRB ruling comes at a time when the government is reportedly planning to spin off the marketing operations of GAIL into a separate company. Under the Petroleum and Natural Gas Regulatory Board Act, marketing and transmission functions should not be performed by the same entity. The aim was to prevent conflict of interest since companies like GAIL are in a position to push their gas on priority since, as a transmission company, it also runs pipelines. Following the legal requirement, GAIL did not spin off its marketing business but decided to split its business and accounts into marketing and transmission businesses.

A consortium of companies led by GAIL is implementing the ambitious Rs 129.4 billion Urja Ganga gas pipeline project to connect eastern India to the National Gas Grid.

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