Brookfield to acquire Mukesh Ambani's East West Pipeline for Rs 13,000 cr

Files a preliminary placement memorandum

Canadian investor Brookfield-led India Infrastructure investment trust (InvIT) is set to acquire East West Pipeline (EWPL), earlier known as Reliance Gas Transportation Infrastructure, from Mukesh Ambani for Rs 13,000 crore.

Brookfield on Thursday filed a preliminary placement memorandum, through which InvIT (set up by Brookfield as sponsor and 90 per cent investor) will invest Rs 13,000 crore to acquire EWPL.

Reliance Industries Ltd (RIL) will get the right to acquire equity shares of Pipeline Infrastructure Private Ltd (PIPL), held by InvIT at an equity value of Rs 50 crore, at the end of 20 years. 

Based on the understanding, the existing pipeline usage agreement has been reworked, giving a significant participation in net earnings of PIPL to RIL.

“As part of the transaction, InvIT will acquire 100 per cent equity in PIPL, which currently owns and operates the pipeline," said an RIL statement.

The 1,400-km pipeline, owned by Mukesh Ambani’s holding companies, connects Kakinada on the Andhra coast to Bharuch in Gujarat, had ran into losses owing to a drop in natural gas production in Reliance Industries (RIL) blocks in the Krishna-Godavari basin. Following the production drop, the pipeline was reportedly running at nearly 5 per cent of its capacity to transport 80 mmscmd (million standard cubic metres a day) of natural gas.

EWPL is also connected to pipelines of other operators like GAIL and Gujarat State Petronet for onward delivery of gas to other parts of India. Following the deal, RIL’s current investment in preference shares, valued at Rs 4,000 crore, will continue and will be converted into equity after 20 years.

The pipeline project is considered to play a vital part in the fortunes of KG basin, as three projects — including R-Series, satellite cluster and MJ (D55) — that are expected to be the game-changers for RIL and its partner BP Plc, are likely to start first production from 2020. The three projects put together have around 3 trillion cubic feet of discovered gas resources, where the companies are investing around Rs 40,000 crore.

Based on the reworked usage agreement, the reserved capacity has been reduced to 33 mmscmd against 56 mmscmd. The deal adds any unutilised capacity payment by RIL will be the difference between Rs 500 crore a quarter and the revenue earned by PIPL. 

Moreover, RIL will continue to be entitled to transport gas, either by itself or of any customers, free of cost against any outstanding unutilised capacity payments. 

At the current approved final tariff of Rs 71.66 per million metric British thermal units (MMBTU), if the average volume of gas transported is 22 mmscmd, RIL will not be liable to make unutilised capacity payments. 

The next review of tariff in April 2020 will consider upward revisions of tariffs arising from determining a lower revised capacity of the pipeline.