Capping Gas Grid Concerns

New Delhi, March 24 | Updated: Mar 25 2004, 05:30am hrs
Countering the concerns raised by leading private oil and gas companies like Reliance Industries (RIL), Shell India, BP, as well as agencies like the Planning Commission, Gail India Ltd has submitted a detailed strategy to the government, incorporating best international practices, for being designated as the nodal agency for the development of the national gas grid.

Significantly, both RIL and Shell have agreed in principle to use the pipeline infrastructure developed by Gail for evacuating natural gas and LNG from their respective projects at the Krishna-Godavari basin and the Hazira LNG terminal.

Reacting strongly to the objection that the single agency model for national grid will result in cartelisation by Gail chairman and managing director Proshanto Banerjee, said, the Indian gas pipeline sector is not a monopoly. Multiple players like AGCL, TNGCL and GSPL have already set up regional/local pipelines and players like British Gas, Bharat Petroleum, Hindustan Petroleum besides state governments are also participating in various distribution networks. The regulator will ensure non-discriminatory open access and issues like fair tariff and efficient operation.

Mr Banerjee said that since the submission of the draft policy by the government in September last year and subsequent concerns by various public and private sector agencies, a lot of water has flown down the Yamuna. In fact, he said that protracted discussions were now being conducted with RIL at the highest levels, and that it had agreed, in principle, that the pipeline from Kakinada to Uran would be built, owned and operated by Gail, with a high degree of involvement of Reliance in areas like project management, etc.

Reliance, the only other player with serious plans for inter-state pipelines, has now approached Gail to lay pipelines for KG gas, he said adding that a term sheet has already been signed with RIL in this regard.

As for Shells objections, Gail is of the view that if Shell was against a national gas grid being put up by Gail, the most appropriate thing for them would be to put up a pipeline for their LNG terminal at Hazira, the nearest market being Uran.

However, Shell has already signed a deal with Gail wherein they have booked capacity on the pipeline which Gail is putting up from Dahej-Hazira-Uran, and both companies were currently negotiating the actual tariff although the bandwidth had been finalised. That being the case, to say that they are opposing the grid was contradictory to their action on the ground.

Addressing the concerns over open access/common carrier and tariff fairness as well as Gails financial and technical capability, Mr Banerjee said, some of these are legitimate concerns. Gail has already said that it would retain its transmission activity, this being the companys main business, but would spin off its trading activity into another company albeit in a phased manner.

With regard to concerns over tariffs, he said Gail has compiled and submitted a report on the methodology of transmission tariff in 38 countries which account for 90 per cent of the worlds gas consumption, with the aim of creating a credible basis for comparison with tariffs being planned by Gail.

Gail has taken the following steps to pre-empt any misunderstanding or allegations of tariff discrepancies: Its operations have been benchmarked with 30 plus gas pipeline companies, which in turn, will be the operating targets within the company; got its investments in existing pipelines (49) vetted by KPMG to pre-empt any future charges that they had goldplated their investments; asked the UK-based National Energy Research Associates to study its investment numbers and operating benchmarks, with the aim of helping Gail calculate corresponding tariffs. Mr Banerjee said: We are confident that no user or regulator will find these to be over-stated.

Mr Banerjis confidence ould be justified. According to Mr Nigel Shaw, CEO, BG India, BG India is in favour of a single transmission company to operate an inter-state pipeline network in India.

As for the third concern, Gail estimates are that the total project would cost $4.2 billion for creating a national gas grid of another 7,000-8,000 km. The grid would not be built is isolation irrespective of the actual gas source going on commercial production. Pipelines would be built only when commercial production of gas or the LNG terminals were ready. Mr Banerji said Gail had the means of back-calculating 18 months and working out which segment of the grid should be built and when. Moreover, the demand for $4.2 billion would come in 12 segments, each linked to commercial availability of gas, not requiring Gail to service a debt of $4.2 billion at one go. At any given time, therefore, the demand would not be more than $1 billion. Also, Gail had an internal generation of $500 million, annually. And this would go up when Gail would get into LNG marketing on a serious footing in 2004-05.

As for Gails technical prowess, the company had already demonstrated that with the Dahej-Vijaipur 600 km pipeline, which would soon be physically commissioned, including 45-60 days required for the gas to flow, in exactly 14 months from the date of placement of order for the line pipes. Hence, on 31 March, 2004, LNG will cross Vijaipur, and Shell has been informed that they will have the 400 km Dahej-Uran pipeline (Dahej-Uran) ready by March 2005.