Finance Ministry starts cost audit of Vedanta's $800-900-mn Barmer pipeline

The Union finance ministry has started a cost edit of Vedanta’s $800-900-million pipeline, which carries crude oil from Barmer in Rajasthan to the Jamnagar district in Gujarat. Sources said the ministry has assigned accounting major Grant Thornton to look into whether or not there was a loss to the government in profit petroleum on account of the pipeline, which was not part of the production-sharing contract (PSC).

The petroleum and natural gas ministry recently gave Vedanta a 10-year extension to the PSC. It was supposed to expire on May 14, 2020, but would go on for another decade starting May 15, 2020. The finance ministry now seems to be tightening the norms.

Initially, the pipeline was not taken into account as the delivery point for crude oil was the processing unit at Mangala, Rajasthan. The government was supposed to collect crude oil as part of the PSC.

However, no government refinery was willing to collect crude oil because of its waxy nature. So the 670-km pipeline had to be put in place and the delivery point moved to Jamnagar.

 

This is probably the longest, continuously heated pipeline in the world, and the first such in India. It was necessary as the waxy nature of crude oil prevents its free flow. To ensure this, crude oil has to be heated continuously. More than 30 skin-effect heat management system stations are installed every 18-20 km along the pipeline up to Bhogat, Gujarat. It passes through eight districts and 250 villages. 

Sources said the Mangala field contributes the lion’s share of profit petroleum — revenue left after the operator recovers costs — in the Barmer block. The PSC determines the shares of the government and the operator.

At present, the pipeline cost is accounted for in only the Mangala field.

“The pipeline, however, was a common facility for other fields in the block. Hence, the finance ministry might be looking into whether there was loss, since the entire cost recovery was done for Mangala,” said a person close to the development.

A Vedanta official said the company was not aware of the audit.

The main producers of oil are Mangala, Bhagyam, Aishwariya, Raageshwari, and Saraswati fields, as well as Barmer Hill and some satellite fields. Another official said the matter was currently before an empowered group of secretaries, of which Petroleum Secretary M M Kutty is also a part.

The extension of contract was given to the Anil Agarwal-led company on the condition it would pay 10 per cent additional profit petroleum. The petroleum ministry and Vedanta are engaged in a legal tussle over increase in the profit share of the government. 

The Vedanta block is expected to have 466 million barrels of oil, which can be recovered by 2030.

A KEY PLAYER

• Vedanta is the largest private producer of crude oil in India
• On Tuesday, Petroleum Minister Dharmendra Pradhan asked the company to increase oil production from 190,000 barrels to 250,000 barrels per day
• Future production from the block will be vital for India, struggling from higher crude oil prices and static production
• Vedanta is set to invest around Rs 280 bn in Rajasthan block for its expansion plans