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Oil Ministry moots 10% bank guarantee for pipeline projects

Balaji C. Mouli

New Delhi , Feb. 13

THE Petroleum Ministry is planning to seek a bank guarantee from corporates interested in setting up product pipelines across the country.

This comes in the wake of several leading petroleum companies proposing to set up pipelines parallel and adjacent to each other, especially in the North-West corridor of the country.

The Government is concerned that some of the applications are only aimed at thwarting the efforts of serious players since the cost incurred in obtaining the `right of way' for setting up the pipelines is minimal. Also, duplication of assets could lead to infructous investments and creation of stranded assets.

According to senior Petroleum Ministry officials, the bank guarantee will amount to 10 per cent of the project cost and would be invoked, if the project is not commissioned within the time mentioned by the company in its application.

Recently, Essar Oil Ltd, Reliance Industries Ltd and Hindustan Petroleum Corporation Ltd (HPCL) have submitted applications to the Ministry seeking to set up pipelines connecting Maharashtra and Gujarat to the northern parts of the country.

Earlier, the Petroleum Minister, Mr Ram Naik, sought review of the policy on petroleum products pipelines, which allows for two companies to set up pipelines parallel and adjacent to each other and criss-crossing the country. The review was made on the grounds that public sector HPCL's proposed pipeline runs parallel and adjacent to a pipeline proposal already advertised by Reliance Industries Ltd.

The Ministry finally ruled that in case there are such proposals, Government would not interfere since the market would fund and financially support only those proposals that are viable.

HPCL's pipeline from Mundra to Delhi costs around Rs 1,367 crore and HPCL plans to dedicate for its use a capacity of 4.64 million tonnes per annum (mtpa), leaving a spare capacity of 1.16 mtpa or 25 per cent of the total capacity of 5.80 mtpa. The Government had issued a policy in December 2003, where it said that any oil company laying a product pipeline would have to provide for at least 25 per cent spare capacity for use by other interested parties.

Reliance, on the other hand, proposed to set up two pipelines catering to the western and northern parts of the country — the Rs 1,640-crore Jamnagar-Patiala pipeline, and the Rs 1,780-crore Jamnagar-Kanpur pipeline. These pipelines share common terrain with the pipeline proposed by HPCL.

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