Oil regulator orders encashing bank guarantee of GAIL

Oil regulator PNGRB has ordered encashing part of GAIL India Ltd's performance bank guarantee after the state-run firm failed to achieve financial closure of the Surat-Paradip gas pipeline project even after 3 years.
GAIL was on April 25, 2012 granted authorisation to lay a 1,724-km natural gas pipeline from Surat in Gujarat to Paradip in Odisha. The project, as per the authorisation letter, was to tie up funds or achieve financial closure within 180 days and be completed within three years.
The Petroleum and Natural Gas Regulatory Board (PNGRB) had on September 30 ordered enchasing of 25 per cent amount of the Performance Bond submitted by GAIL for failing to achieve financial closure of the project despite being provided "considerable long period of more than 42 months".

GAIL moved the Delhi High Court against the PNGRB order. The Court on October 10 granted one week's time to GAIL to satisfy the Board with respect to its financial capabilities, PNGRB said in an October 13 order.
Thereafter PNGRB asked GAIL to furnish proof of tying up of funds from banks or a company board resolution approving allocation of funds for the project.
"On hearing the representative of GAIL, we find that neither any error in the order dated September 30 has been pointed out nor any resolution of the Board of Directors of GAIL has been placed before us and moreover, no other reason could be placed which could convince the Board to re-look into its earlier decision," PNGRB said in October 13 order.

PNGRB said had powers to levy civil penalty "but giving consideration to the entailing consequences of such order we merely directed to encash 25 per cent of the Performance Bank Guarantee."

"It is thus manifest that GAIL has failed to place any such fact which could satisfy us about the financial closure... And assertions made on behalf of GAIL do not satisfy the grounds as required to review the order of the Board... And as such the order dated September 30 passed by the Board is maintained," the October 13 order said.
Subsequent to this, GAIL yesterday again approached the Delhi High Court against the PNGRB order.

The 1,724-km Surat-Paradip pipeline was to have a capacity to carry 74.81 million standard cubic meters per day of gas and was to pass through Nagpur in Maharashtra and Raipur in Chhattisgarh.
"The entity is allowed a maximum period of 36 months for the date of issue of the authorisation letter for commissioning of the natural gas pipeline project," the April 25, 2012 letter granting authorisation to GAIL to lay the pipeline said.
It also stated that the company "shall submit a detailed and clear financial closure report to the Board within a period of 180 days from the date of authorisation".

GAIL had furnished a performance bond of Rs 20 crore as a guarantee for timely commissioning of the project.