Oil regulator cancels GAIL's Surat-Paradip pipeline licence

Oil regulator PNGRB has terminated GAIL India Ltd's licence to build a Rs 10,000 crore natural gas pipeline from Surat in Gujarat to Paradip in Odisha, saying the state-owned firm hadn't started work on the project even after six years.

The Petroleum and Natural Gas Regulatory Board (PNGRB) also ordered encashing the company's entire performance bank guarantee of Rs 20 crore, according to the regulator's March 13 order.

GAIL had in November 2011 bid an astonishingly low pipeline tariff of Rs 0.01 (one paisa) per million British thermal unit to bag the project. It was formally awarded the licence in April 2012.

It had beaten Gujarat government firm GSPC India Transco Ltd to bag the Surat-Paradip project. This was the country's first pipeline originating and terminating at a port. The 2,112-km long pipeline was to have a capacity to carry 74.81 million standard cubic meters per day of gas.

Oil Minister Dharmendra Pradhan had on numerous occasions told Parliament that the work on Surat-Paradip and other such pipelines had not started because of several reasons including non-availability of anchor load customers.

Other gas lines that have been delayed for a similar period include Mallavaram-Bhopal-Bhilwara, Mehsana-Bhatinda and Bhatinda-Jammu-Srinagar pipelines. Gujarat government entity GSPC India Transco Ltd is the licence holder of these lines since 2011.

The GAIL licence termination is the first such action by PNGRB since June 2012 when it had asked the government to cancel licence granted to Reliance Gas Transportation Infrastructure (RGTIL) to lay four gas pipelines over delays in implementation of the 2,175 km lines.

Relogistics Infrastructure Ltd (Relog), a subsidiary of Mukesh Ambani's RGTIL, had in 2007-08 won government authorisation to lay Kakinada-Basudebpur-Howrah pipeline, Kakinada-Chennai line, Chennai-Bangalore-Mangalore pipeline and Chennai-Tuticorin line but physical work on these pipelines hadn't started.

In its March 13, 2018, order, PNGRB said it had encashed 25 per cent of GAIL's bank guarantee in September 2015 as the company hadn't met timelines and not even achieved financial closure (arranging of funds) for the project.

PNGRB said the September 22, 2015, order was to provide "natural justice" to GAIL to explore possibilities to come up with viable strategies on project implementation.

The state-owned firm's challenge of that order was dismissed by Delhi High Court in April 2017, following which Rs 5 crore of bank guarantee was encashed.

PNGRB then directed GAIL to replenish this amount as bank guarantee and quickly submit financial closure plan for the project.

GAIL then submitted a financial closure report, which was accepted by PNGRB, but refused to refurbish the bank guarantee.

PNGRB on January 18 wrote to GAIL intimating that its financial closure plan had been accepted and asked it to replenish within 15 days the Rs 5 crore guarantee already encashed, failing which the balance amount of Rs 15 crore would also be encashed and licence to lay the Surat-Paradip pipeline terminated.

GAIL, however, responded seeking refund of the encashed Rs 5 crore bank guarantee or restoring it to the core bank guarantee.

PNGRB did not agree to it and sent it a show cause and went ahead with the cancellation of the licence after failing to elicit a desired response from GAIL.

"The board has come to the conclusion that the authorised entity has failed to perform its obligations under the terms and conditions of authorisation with respect to refurbishment of the encashed performance bank guarantee amount of Rs 5 crore.

"Thus, action under the provision of Regulation 16(1)(c) be taken for encashment of the balance performance bank guarantee of Rs 15 crore and authorisation of GAIL (India) Ltd for Surat-Paradip natural gas pipeline project be terminated," PNGRB said in the order.