Coal News We love to talk!

MAY 11 2016

Despite Modi push, gas grid stays stuck

  • Economic Times, ET Bureau / Hyderabad
  • Created: Wed 11th MAY 2016

Two years after finance minister ArunJaitley proposed to lay 15,000 km of new natural gas pipelines, the government has still to finalise a plan on how these are to be financed. (PTI) Two years after finance minister ArunJaitley proposed to lay 15,000 km of new natural gas pipelines, the government has still to finalise a plan on how these are to be financed. (PTI)

 Prime Minister NarendraModi may be a big proponent of gas grids and oil minister DharmendraPradhan may talk of how natural gas will replace other fuels, but the government’s ambitious pipeline projects remain stuck — not only is the existing capacity underutilised at just around 40% usage thanks to poor availability of natural gas (see graphic), even new projects are flailing.

 Two years after finance minister ArunJaitley proposed to lay 15,000 km of new natural gas pipelines, the government has still to finalise a plan on how these are to be financed.While the petroleum ministry put up a proposal to fund the national gas grid through viability-gap funding (VGF), the finance ministry has turned this down.

 “In the evaluation of the gas pipeline project under viability gap funding scheme, the department of economic affairs opined that such scheme does not cover the funding for the development of gas pipelines,” a senior petroleum ministry official told FE. Though the ministry is looking at a direct funding, the finance ministry is yet to take a call on this.

 Around 2,500 km of pipelines are to be set up under the public-private partnership-VGF model.

Following Jaitley’s Budget announcement, the petroleum ministry identified a 520-km pipeline — Bokaro-Ranchi-Angul — to be developed as a pilot PPP through VGF. The two other pipelines proposed under the same model are Barauni-Guwahati-Agartala and Haldia-Paradip-Srikakulam.

 The petroleum ministry is now examining how the Bokaro-Ranchi-Angul section — part of the Jagdishpur-Haldia pipeline project of GAIL — can be funded. “The ministry has forwarded a proposal from GAIL to the finance ministry to consider the required funding of Rs 3,200 crore for implementation of first phase of Jagdishpur-Haldia pipeline,” said the official.

 The primary reason for the lukewarm response to laying of gas pipelines is that there is no certainty on availability and the domestic market is not conducive to absorbing expensive imported gas. In such a situation, where creating the supply network is expected to create its own demand, a government grant is critical.

 In the VGF model, a one-time grant is provided to projects that are economically justified but fall short of financial viability.Infrastructure projects have long gestation periods and, in most cases, are not financially viable on their own.

 In order to remove this shortcoming and to bring in private sector efficiencies, the government is promoting envisaging projects through ‘viability gap funding’. Primarily, this facility is meant to reduce capital cost of projects by credit enhancement and to make them viable and attractive for private investment through supplementary grant funding.

 India’s largest gas transmission and marketing company GAIL’s 11,500 km of pipeline network is currently operating at below half its capacity.

Tags

DIRECT Finance Grid Gas Natural Gas Oil public-private partnership Gas Pipeline The Department of Economic Affairs Department of Economic Affairs Petroleum Haldia Budget India

Related News

  • Tamil Nadu farmers hail oil ministry's decision to cancel CBM project  Read more
  • Good news: Now, LED bulbs set to go on sale at petrol pumps across India  Read more
  • Wind energy companies move Madras High Court against auction of Tamil Nadu projects  Read more
  • Cairn-Vedanta merger to happen by 2016-end: Anil Agarwal  Read more
  • ONGC Videsh Ltd seeks autonomy to invest $1 billion to speed up acquisition of overseas fields  Read more
  • GST Bill: Allow input tax credit on five products, oil ministry says  Read more
  • Mathura refinery revamps units ahead of BS-VI fuel rollout  Read more
  • ONGC, Bharat Petroleum offer to desilt water channels  Read more
  • ONGC sets sight on Bangladesh for fertiliser sale from Tripura  Read more
  • Pradhan hints at creating giant vertical under HPCL  Read more