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GAIL India cancels contracts for Tamil Nadu gas pipeline

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World Pipelines,

GAIL (India) has decided to cancel contracts worth Rs 210 crore for laying the 310 km Tamil Nadu stretch of the Kochi-Kottanad-Mangalore-Bangalore gas pipeline.

The state-run company has spent Rs 650 crore on contracts, which included pipe procurement and laying the pipes for this Tamil Nadu stretch. The total pipeline project cost was estimated at Rs 3200 crore.

“A decision to this effect was taken by the board of the company recently,” said BC Tripathi, Chairman and Managing Director, GAIL.

Tamil Nadu portion under threat

A decision on whether the company will completely abandon the Tamil Nadu portion of the project will depend on the outcome of the Supreme Court case.

The project has been facing opposition in Tamil Nadu amid charges of damage to farm land. The pipeline was designed to pass through seven districts of Tamil Nadu, a distance of 310 km covering 134 villages; 505 km in Kerala and 85 km in Karnataka.

Gail had planned to lay pipelines from Kochi to Bangalore through Kanjikode and Coimbatore. Accordingly, out of the 900 km pipeline, about 300 km would have to pass through Tamil Nadu and 100 km through Karnataka. The land acquisition for laying of pipelines is being carried out under the Petroleum and Mineral Pipelines (Acquisition of Right of User in Land) Act, 1962. Under the Act, the owner will retain the ownership rights over the land and cultivation, other than planting of trees.

However, following protests by farmers, the Tamil Nadu Government declared that GAIL would have to stop laying the pipeline across farm fields and instead align it with highways.

Cost of cancelling the contracts

Tripathi said it is difficult to give the immediate financial implications of terminating the contractors.

“It’s only when we invite re-bids for laying the network that we will know. Material procurement is 70% of the total project cost. And we are preserving the material.”

This disruption not only impacts GAIL, but also Petronet LNG’s Kochi LNG terminal, for which GAIL is unable to complete the gas exit route.

In the beginning, the state government had extended its support, as no network can be laid without its help, Tripathi said. With state support, GAIL has been able to lay a 60 – 70 km initial stretch.

Impact on LNG project

There will certainly be an impact on the prospects of Petronet LNG Limited, which has set up a re-gasification plant of 5 million tpa capacity. The LNG terminal had raised high hopes about providing natural gas to bulk consumers in Kerala and neighbouring states.

Even as other LNG terminals are being planned in Tamil Nadu and Andhra Pradesh, the Kochi terminal was expected to have an early advantage. On the contrary, the terminal is facing serious problems arising out of low capacity utilisation. Less than 10% of the capacity is being used by the terminal now.

Sources in the LNG industry said it would require a political decision to change the scene in Tamil Nadu. With Bangalore having been connected to the Dabhol LNG terminal in Maharashtra, the link from Kochi to Bangalore would have ensured national grid connectivity, which, in turn, would be useful for making use of the indigenous gas. The price variation between indigenous and imported gas has been a serious cause of concern and several industrial users have been hesitant to make a decision to switch over to LNG, considered the cleanest fuel of the current century.

Edited from various sources by Elizabeth Corner

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