Oct 10, 2012

OilMin cancels RGTIL's permits to lay gas pipelines

The Oil Ministry has cancelled permits issued to billionaire Mukesh Ambani's privately owned RGTIL for laying four natural gas pipelines, saying there were inordinate delays in construction of the 2,175-km lines.

"Orders cancelling authorisation issued to Reliance Gas Transportation Infrastructure Ltd (RGTIL) for laying of four pipelines from Kakinada in Andhra Pradesh to Howrah in West Bengal, Chennai and Tuticorin in Tamil Nadu and Mangalore in Karnataka were issued last week," a source said.

However, the letter cancelling the permit could not be served on RGTIL in the first instance because of incorrect or incomplete address and a new letter was sent.

RGTIL, whose bank guarantees totalling Rs 80 crore that were pledged as collateral for executing the pipelines, expired last year and the Ministry has asked the firm to furnish fresh securities of the like amount which the government will forfeit for failure to lay the pipeline, he said.

The Ministry refused to buy RGTIL's argument that the government has already allocated all of the projected mmscmd of gas output from the KG-D6 fields to customers in Andhra Pradesh, Maharasthra and other northern states, leaving no gas for transportation through its proposed pipelines from Kakinada to Howrah, Chennai, Tuticorin and Mangalore.

Sources said the ministry, which had in 2007 made it a condition that RGTIL cite a source of gas before it is given license or authorisation to lay the pipelines, has not agreed with the the company's assertion that in absence of any gas allocation the pipelines will be infructuous investment.

The Ministry also rejected the firm's assertion that it has done all ground work including route survey, pre- engineering and acquisition of right of use (ROU) and it would start work the moment government identifies a source of gas that would feed the pipelines.

The pipelines, RGTIL had asserted, would be ready one month before the source or field is ready to deliver the gas.

Sources said the ministry based its decision on a recommendation made by the oil regulator, Petroleum and Natural Gas Regulatory Board (PNGRB).

Relogistics Infrastructure Ltd (Relog), a subsidiary of 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 work on these pipelines hasn't yet started.

Relog cited uncertainty about availability of gas for not building the lines in the 3 year timeline specified in the 2007 authorisation. The three year period expires this month.



GSPC buys 65 pc stake in Gujarat Gas for Rs 2,464 crore

BG Group has sold the controlling stake in Gujarat Gas Co Ltd (GGCL) to state-owned Gujarat State Petroleum Corp (GSPC) for Rs 2,463.8 crore, after lengthy negotiations during which the deal value fell because of regulatory uncertainty and the withdrawal of some bidders under political pressure.
The deal, announced in the run up to assembly elections in the state, is politically significant and is widely expected to be showcased as a symbol of Gujarat pride as the company originally belonged to the state government. State government officials say that Gujarat Gas is a "prized catch" for chief minister Narendra Modi.

For BG, the exit is part of its global realignment of its portfolio. It requires $9 billion for exploration and production in Brazil and Australia. It recently sold stakes in offshore blocks in the Mahanadi and KG Basins.
"This transaction helps BG get closer to its announced $5-billion non-core assets divestiture programme while GSPC enters into new gas distribution markets in Gujarat increasing its size and scale. It's a win-win scenario for both parties," said Rahul Saraf, Director, Investment Banking at Citi India. Citibank was BG's advisor in the deal.
The acquisition makes GSPC the country's largest distributor of natural gas with total volume of close to 8 million cubic metres a day. It will acquire BG's 65.12 per cent stake at 295 per equity share of the country's largest city gas distribution (CGD) player in private sector with consumer base of 3.5 lakh in South Gujarat. On Wednesday, GGCL scrip closed at Rs 336.70 on Bombay Stock Exchange, down by 2.15 per cent, before GSPC group announced the inking of agreement in Singapore.
GSPC had initially bid for the stake along with state-run ONGC and BPCL, but finally acquired the stake alone. According to a top official in Gujarat's energy department, GSPC may face challenges in getting regulatory approvals in absence of central PSUs on board.
GSPC Group, which is already country's largest LNG trader, has also emerged as largest natural gas distributor with volume of 7-8 mmscmd. GSPC Group is now much larger than Indraprastha Gas and Mumbai based Mahanagar Gas.
Commenting on the development, state energy minister Saurabh Dalal said: "The synergy between GSPC Group and GGCL will benefit all the stakeholders. We are pleased with the positive outcome of the negotiations." However, GSPC Group officials remained silent about discontinuing the alliance with ONGC and BPCL. GSPC Group MD Tapan Ray said: "We are pleased to announce this acquisition that enhances GSPC Group's presence in Gujarat. The acquisition is in the long-term interests of the industrial and retail customers of Gujarat."
BG India head Shaleen Sharma could not be reached for his comments. GGCL MD Sugata Sircar said: "The deal is subject to the regulatory approvals. There is no change for GGCL in terms of operations. We will continue with our ongoing expansion plans worth Rs 150 crore." GGCL has close to 600 employees.
GSPC Group will approach Sebi, RBI and Competition Commission of India for regulatory approval. It will also try to get relief from issuing an open offer to minority shareholders to keep GGCL listed on bourses.
However, the valuations have shrunk since BG made its decision public late last year. It was initially expecting to raise close to Rs 3,150 crore ($600 million) through this divestment. Regulatory orders that threatened the viability of city gas business of Indraprastha Gas Ltd, along with withdrawal of rival bidders, strengthened GSPC's negotiating position.

After regulatory approvals, GSPC will launch an open offer for an additional 20%, although it is still not clear if the plan will eventually be to delist the company.
Analysts said the deal would improve valuation of GSPC's transmission arm Gujarat State Petronet Ltd while GSPC's proposed 5-mtpa LNG terminal would be viable as half of its capacity will be utilised by its own city distribution business.
In November 2011, BG Group announced to divest its controlling stake in GGCL to focus on exploration and production activities. At least half a dozen potential investors including Adani and Torrent groups expressed interests in acquiring GGCL. However, they did not submit their final bids for unknown reasons. Subsequently, GSPC-led consortium consisting of ONGC and BPCL emerged as the sole bidder. Now, only GSPC group emerged as acquirer. GGCL's market capitalisation eroded by 20 per cent as only single bidder remained in the fray.