Presentation to Secretary, MOP&NG on Natural Gas highway

Sector wise Gas Demand - Projection by working group of XI 5 year plan

MMSCMD
Sector 2008-09 2011-12
Fertilizer 42.89 76.26
Power 91.2 126.57
City Gas 12.93 15.83
Industrial 16.05 19.66
Petroechemical / Refineries / Internal Consumption 27.15 33.25
Sponge Iron / Steel 6.42 7.86
Total 196.64 279.43

Uneven Gas Consumption & Infrastructure

Current usage of gas in various parts of country is as follows:

Region %
Western (Gujarat & Maharashtra) 42.7
Northern (Rajasthan, UP, Delhi, Haryana) 30.5
Central (MP) 4.6
Southern (TN, AP) 14.5
Eastern (Assam, Tripura) 7.6
 Southern, Central, Eastern & North Eastern parts of country lack gas supply as well as
infrastructure.
 Gas market has remained limited to the states where gas sources were found. This explains
higher consumption of gas in western region.
 Pipelines have also been laid from source to developed markets and major consumers like
Fertilizer & Power Plants.
 States closer to the gas source have had benefits of higher utilization of gas and local
development of gas market.
 Other states/under developed have not been able to utilize benefits of gas due to less gas
availability and lack of infrastructure.

Operational Pipeline Infrastructure

 Total Natural gas pipeline length of GAIL is about 7000 kms with Capacity of about 142
MMSCMD.
 Two major cross country network's namely HVJ-DVPL-GREP and DUPL-DPPL.
 The network covers the states of Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh, Delhi,
Haryana and Maharashta.
 Regional / Local distribution networks in the states of Andhra Pradesh, Assam, Gujarat,
Maharashtra, Rajasthan, Tamil Nadu and Tripura.
 The gas network of GAIL has played huge role in the economic development of India especially
in the Fertilizer and Power sector.
  Reliance's 1400 km (approx.) long East - West Pipeline (EWPL) with capacity of 80 MMSCMD,
from Kakinada to Bhadbut has become operational from May 2009.
 GAIL's pipeline network is connected to RIL's EWPL at three locations at Oduru in KG Basin,
Mhaskal with DUPL-DPPL network in Maharahstra and at Ankot with HVJ-DVPL-GREP network
at Gujarat.
 EWPL is connected to GSPC's PL network at Bhadbut.
 Presently distribution of RIL's KG Basin gas is through GAIL's and GSPL's network.
 Other regional players are GSPL and AGCL. GSPL has about 1130 kms of Pipeline network in
Gujarat transporting about 12 MMSCMD in 07-08.

Authorized Pipelines

Following pipelines have been authorized by MOP&NG

 To GAIL (about 5500 kms)

o DADRI-BAWANA-NANGAL (600 kms)
o CHAINSA-JHAJJAR-HISSAR (400 kms)
o JAGDISHPUR-HALDIA (2000 kms)
o DABHOL-BANGALORE (1400 kms)
o KOCHI-KANJIRRKOD-BANGALORE (1100 kms) (Above GAIL pipelines are likely to be
operational in phases from year 2011 to 2012)
 To RGTIL (transferred to RELOG, about 2800 kms)
o KAKINADA-HALDIA (1100 kms)
o KAKINADA-CHENNAI (445 kms)
o CHENNAI-BANGALORE-MANGALORE (600 kms)
o CHENNAI-TUTICORIN (670 kms)
Pipelines - EOI Published

 GAIL: Central India Pipeline (Vijayawads to Vijaipur, about 1100 kms)

 GSPL: Kakinada - Bhilwara (on similar route to GAIL's proposed pipeline)
 GSPL: Mehsana - Bhatinda (about 1000 kms).

For these pipelines:

 The public consultation process has been completed.

 PNGRB hele meeting with respective entities (Central India)
 Route, capacity of Pipeline to be finalized, and bids are yet to be invited.

Missing Links - Pipelines to Remote Areas

Approx. 3500 KMs

 BARAUNI-GUWAHATI, Approx. 160 kms

 THANE - NASHIK - NAGPUR Approx. 750 kms
 PARADIP (Mahanadi Basin) - RAIPUR / BHILAI Approx. 710 kms.
 KOTA - JAISALMER, Approx. 600 kms
  AMRITSAR - JAMMU (J&K CONNECTIVITY) - Approx. 210 kms.
 CHANDIGARH - PARWANOO (HIMACHAL CONNECTIVITY) - Approx. 75 kms
 HISSAR - GANGANAGAR - BHATINDA Approx. 250 kms

TOTAL PIPELINE LENGTH REQUIRED TO BE LAID MAY EXCEED 6000 KMs (INCL. THE EOI
PIPELINES) WHICH WOULD NEED CAPEX OF Rs.30,000 CRORE.

AREAS LACKING GAS INFRASTRUCTURE

Northern region J&K, Himachal, Punjab, part of Haryana, Uttarakhand.

Western Region Parts of Maharashtra
Central Region Rajsthan, parts of MP, Chhattisgarh
Eastern Region W.B, Orissa, Jharkhand
Southern Region Kerala, Karnataka
North-Eastern Region Parts of Assam, Meghalaya, Sikkim, Arunachal Pradesh, Manipur

As part of authorised projects GAIL & RIL to set up pipelines in Punjab, Haryana, Bihar, WB, Jharkhand,
Tamilnadu, Kerala & Karnataka.
Proposal for Natural Gas highways

 Existing authorised and proposed pipelines would resemble Natural Gas Highways, something
like National Highways.
 Natural Gas Highways would enable accelerated development of infrastructure needed in
remote / under developed areas.
 This has now become important in view of expected increase in gas availability.
 Total new pipelines required under the Natural Gas Highways may be of the order of 6000 KMs,
which may need Rs.30000 Crore as Capex.
 Above would be in addition to the Rs.50,000 Crore already committed by GAIL/RIL under the
authorised projects.

Important issues in setting up of the Natural Gas Highways

 Huge Capital Expenditure, to the tune of Rs.30,000 Crores required in next 5-7 years.
 Selecting a dependable agency for implementation and operation of these projects.
 Authorisation for these pipelines by MoP&NG / PNGRB.
 Provision of anchor loads on these pipelines. Tie-up of source for the anchor loads.

Funding the highways

 Option - I - Government Budgetary Support

 Option-II - Cess Mechanism

Funding the highways

Proposal on Cess Mechanism

 A Cess could be levied on sale of all gas across the country. MoP&NG may consider formation
of a Cess Fund similar to Gas Pool account for collection of Cess, which may be used for
financing the Gas Highways.
 Levy of Cess of about US$ 0.20/MMBTU (Approx. Rs.0.35 / SCM) on gas supplied in the
country (presently 125 MMSCMD) is proposed.
 The Cess Fund may be maintained by MoP&NG or an agency so mandated.
 The fund generated through Cess (at the proposed rate) would be to the tune of Rs.1600 Crs.
per year.
 Assuming a target of setting up of approx. 1000 KMs of pipeline in a year (Rs.5000 Crores a
year), the fund generated through the Cess may not be sufficient. Hence some alternatives
related to Cess mechanism need to be explored.

Alternatives related to Cess Mechanism.

i. 100% funding through Cess Fund for all pipelines.

ii. 50% funding through Cess Fund and remaining through equity/debt from implementing agency.
iii. Funding of pipelines only in remote/socially backward areas through the Cess.

Alternative-I

 Proposed infrastructure requiring Capex of Rs.30000 Crs. approx can be created in next 10 -
12 years period, which may not meet the objective.

Alternative-II
  Proposed infrastructure requiring Capex of Rs.30000 Crs. approx can be created in next 6-7
years period. Remaining fund (50%) would be put in by the implementing agency as equity or
debt. Some of the remote connectivity limbs may not evince interest from any player.

Alternative-III

 Of the 6000 KMs pipeline required, 3000 KMs are likely to be required for connectivity of under-
developed areas. Such remote area pipelines may be met through Cess and could be
completed in next 4-5 years.
 Selection of such remote pipelines for execution through Cess Fund may be done based on-
o The objective of socio-economic development of an hiterto under-developed region
o Anchor load (existing or proposed fertilizer and power plants) on the route of the
pipeline
o Spurline connectivity (J&K, Parwanoo link etc.) from a viable trunk line to an otherwise
remote and unviable region could be taken up through the Cess fund.

Collection & Operation of Cess Fund

 Fund to be managed by MoP&NG / or an appointed entity in line with operation of "Gas pool
account".
 Cess collection on -
o Producer's Price - prima facie not feasible in view of NELP conditions.
o Consumer Sale Price - Cess may be levied on the Consumer Sale Price.
 As an example, Cess on Petrol & Diesel is transferred by Seller to Central Govt. MoST then
allocates funds from CRF (Central Road Fund) to NHAI.
 Likewise the proposed Cess on gas could also be deposted by Seller to the Cess Fund.

Cess on Petrol & Diesel

 Cess on Petrol & Diesel is deposited by OMCs to Consolidated Fund of India.

 50% of the Cess of Diesel is allocated for rural road development.
 57.5% of the remaining 50% Diesel Cess and 100% of Petrol Cess, is allocated for National
Highways.
 30% of the remaining 50% Diesel Cess and 100% of Petrol Cess, is allocated for National /
State Highways.
 12.5% of the remaining 50% Diesel Cess and 100% of Petrol Cess, is allocated for railway
over/under bridges and unmanned rail crossings.

GAIL - The agency for implementation of Gas Highways

 GAIL was set-up through Cabinet Approval with mandate to create necessary gas infrastructure
in the country. GOI has majority share in the company.
 GAIL has Proven Track Record in gas pipeline construction and operation. All projects
completed in time and with significant cost saving.
 Not a single instance in GAIL's existence of stoppage of gas supply on account of GAIL's faults.
 GAIL has the state of art National Gas Management Centre which can take up the complex task
of management of gas supply throughout the vast spread of the country.
 GAIL's O&M system is tuned to the international benchmarks.
 GAIL as implementation agency would ensure complete transparency in use of Cess fund.
 No other agency has such credentials in the country.
 GAIL is well positioned to do justice with these projects and as such we propose that GAIL may
be considered as implementation agency for the Gas Highways.
Authorisation of pipelines

 Presently PNGRB is the agency to authorise the pipelines.

 Many projects are connecting remote locations for which not much response may be received
on EoI.
 MoP&NG may consider authorising these pipeline projects.

Anchor load for these pipelines & their source tie-up

 Each of the pipelines may need anchor load in the form of greenfield / brownfield projects,
which will allow their utilisation to the extent of 50%. Such projects could include fertilizer /
power plants.
 MoP&NG may also intervene for source tie-up for such anchor loads.

Conclusion

 Cess mechanism (proposed at 0.2 $/mmbtu of Rs.0.35 per SCM) may be a suitable option for
quick development of Natural Gas Highways in the country.
 Cess fund may be maintained by MoP&NG / a nominated agency.
 GAIL, being a Central Govt. Company and in view of its past performance is best suited to be
the implementing agency for Natural Gas Highways.