Reliance, Essar agree on pipeline

Corporate giants Reliance and Essar will join hands with Petronet India Ltd (PIL), a joint venture of public sector oil companies, for building a Central India Pipeline Network to carry petroleum products.

Earlier, both Reliance and Essar had given separate proposals to the petroleum ministry for building pipelines to transport products from the refineries being built by them at Jamnagar.

The two proposals led to some confusion over the role of PIL, which was set up with the support of the Centre with the specific purpose of building and operating all future pipelines for carrying petroleum products in the country.

While Indian oil Corporation Ltd (IOCL) and Bharat Petroleum Corporation Ltd (BPCL) hold 16 per cent equity each in PIL, two per cent is held by another public sector oil marketing company IBP SBI Caps, ICICI and IL&FS each hold 10 per cent stake. It was recently decided that Reliance and Essar would each have 10 per cent stake in PIL.

If the two private companies had been allowed to build a separate pipeline, it would have resulted in unnecessary duplication. The Prime Minister’s advisory council on trade and industry recently recommended that for petroleum product pipelines, India should follow the ‘common carrier principle’ as was done in the US. Under this, the regulatory authority does not allow a second pipeline along the same path as it is tantamount to wastage of resources.

The petroleum ministry set up a committee headed by IOC chairman MA Pathan to reconcile the two proposals for optimum utilisation of resources. The committee also included Mr Mukesh Ambani of Reliance and Mr Shashi Ruia of Essar. At a meeting recently in Mumbai, the committee decided that a common pipeline will be built by an SPV (special purpose vehicle) company in which PIL will have 26 per cent stake. The project with a debt equity ratio of 3:1, is estimated to cost about Rs 4,000 crore and is expected to be completed in three years.

Each private company wants to have a major chunk of the remaining stake in the SPV company as do public sector oil majors like IOC and HPCL. However, no company will have more than 26 per cent stake in the SPV, said Mr Pathan, adding that it is yet to be worked out who will bold how much of the remaining 74 per cent stake.

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Compiled from local news media