British Petroleum calls off JV for DME with IOC & GAIL

Anupama Airy

New Delhi, Dec 9: In a surprise move, British Petroleum (BP) has called off its $600 million venture with Indian Oil Corporation (IOC) and Gas Authority of India limited (GAIL) for setting up the world’s first commercial plant for producing di-methyl ether (DME), used as an alternate fuel in power plants.

Top petroleum ministry sources told The Financial Express that BP, in a recent letter to IOC and GAIL, has conveyed its withdrawal from this 1.8 million tonne DME project.

On being contacted, chairman and managing director of GAIL Proshanto Banerjee confirmed the development. When asked about the reason for BP’s walk-out, Mr Banerjee said, ‘‘In fact, BP has not quoted any specific reason for its withdrawal except that it does not want to pursue the project any more.”

While British Petroleum had a 50 per cent equity in the joint venture, IOC and GAIL had 24 per cent stake each in the project. The balance two per cent was being held by the Dehradun-based Indian Institute of Petroleum.

Giving details, sources said that the project was to be located in one of the natural gas producing middle east Asian countries from where DME was to be shipped to India. The plant was to be set up at a cost of $500 million while another $100 million was required for creating marketing infrastructure in India.

DME supplies were to commence from early 2005, officials said. BP had even signed MoUs with seven IPPs including Vasavi, Tanvir Babi, Kannur, PPN and NCC - amounting to 2.5 GW - all along the southern coast for supplying DME from the year 2005. However, following BP’s withdrawal from the consortium, IOC and GAIL will not go ahead with the project, sources added.

IOC and GAIL had signed an agreement with BP for manufacturing and marketing DME in the year 1999. The consortia of BP-IOC-GAIL was together to have the processing licence for DME worldwide, implying that anybody wanting to set up similar plants for extracting DME fuel would have had to pay the consortium licence fee.

DME is a cleaner and cheaper alternate fuel that can replace naphtha in power plants as feedstock, diesel as transport fuel and LPG as domestic cooking gas. DME, according to officials, has burning properties similar to LPG and can be used as a substitute for diesel.
DME is 40 per cent cheaper than naphtha and is a green fuel with no sulphur, nitrogen or metals. It is 6 per cent more efficient (kcal of fuel consumed per kw-hr of power produced) than naphtha. This benefit, coupled with expected lower maintenance costs, translates into an 8 per cent lower cost of generating electricity using DME compared to naphtha, even when the delivered fuel costs are the same?, sources said.