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Coast to coast gas pipeline in India has been terminated

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World Pipelines,

The Petroleum and Natural Gas Regulatory Board (PNGRB) has terminated GAIL India Ltd.’s license to build a natural gas pipeline ‘Surat-Paradip’ from the east coast to the west coast of India. The regulator’s order, dated 13 March, said that GAIL had made “nil” ground progress in the project even after six years.

The natural gas pipeline was proposed to run 1724 km to connect the western and eastern coasts, see an investment of Rs. 10 000 crores (approximately US$1.5 billion), and have a capacity of 74.81 million m3/ day.

The pipeline was proposed to start from Mora/Surat in Gujarat and would terminate at Indian Oil Corporation's Paradip refinery. It was to carry imported natural gas from Dahej and Hazira liquefied natural gas (LNG) terminals, crossing cities including Jalgaon, Nagpur, Raipur and Bhubaneswar. This would be the country’s first pipeline to originate and terminate at a port.

PNGBR had authorised GAIL to lay the Surat-Paradip pipeline in April 2012 following GAIL’s successful licence bid in November 2011 of an astonishingly low pipeline tariff of Rs. 0.01 per million Btu. The terms state that a company is supposed to submit its financial plan and feasibility report within 120 days of authorisation, which GAIL failed to achieve.

According to the regulator’s 13 March order, PNGRB said it had penalised GAIL by encashing 25% of the company’s bank guarantee (Rs. 20 crores Performance Bank Guarantee) in September 2015 because they hadn’t met timelines nor achieved financial closure for the project.

There are several reasons why pipeline works in the country are not being implemented. Oil Minister Dharmendra Pradhan has suggested that pipelines are not being started because of non-availability of anchor load customers. Furthermore, low domestic gas production and gas consumption has kept gas pipelines substantially underutilised for many years, hence gas companies are lacking enthusiasm to build new pipelines for which they had obtained licences years ago. The problem is that if the companies don’t build the pipelines within a reasonable period they must give up their claim or have their licence terminated. GAIL received authorisation in 2012 and, as of 2018, had not started the work on the project, thus their licence has been revoked.

The PNGRB ruling comes at a time when the government is reportedly planning to spin off the marketing operations of GAIL into a separate company. Under the PNGRB Act, marketing and transmission functions should not be performed by the same entity – to prevent conflict of interest. Companies such as GAIL are in a position to push their gas on priority since, as a transmission company, it also runs pipelines. Following the legal requirement, GAIL did not spin off its marketing business and instead separated the business and accounts into marketing and transmission businesses.

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