Brookfield to buy RIL E-W Pipeline for Rs 13,000 cr

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SME Times News Bureau | 15 Mar, 2019
Canadian investor Brookfield has acquired the loss-making East-West Pipeline Ltd from Mukesh Ambani's Reliance Industries Ltd (RIL) for Rs 13,000 crore.

The East-West Pipeline Ltd, earlier known as Reliance Gas Transportation Infrastructure Ltd, runs a 1,400-km pipeline which starts from Kakinada in Andhra Pradesh and ends at Bharuch in Gujarat. The pipeline is used to transport natural gas discovered by Reliance Industries Lts in KG basin block.

The company is selling the pipeline infrastructure as it is operating at just 5 per cent of its capacity, consequent to RIL's production from its KG D6 block sharply dropping over the years. The pipeline was constructed to carry 80 million standard cubic metres of gas per day (MMSCMD).

India Infrastructure Trust, an InvIT set up by Brookfield as sponsor and 90 per cent investor, will invest Rs 13,000 crore to acquire the East-West Pipeline. As a part of the transaction, the InvIT will acquire 100 per cent equity interest in Pipeline Infrastructure Private Ltd (PIPL), which currently owns and operates the pipeline.

Pursuant to this acquisition by Brookfield, the existing pipeline usage agreement has also been reworked. Accordingly, the reserved capacity had been reduced to 33 MMSCMD against 56 MMSCMD.

Also, any unutilized capacity payment by RIL will be the difference between Rs 500 crore a quarter and the actual revenue earned by PIPL.

RIL will continue to be entitled to transport gas, either by itself or of any customers, free of cost against any outstanding unutilized capacity payments.

"At the current approved final tariff of Rs 71.66/MMBTU (million metric British thermal units), if the average volume of gas transported is 22 MMSCMD, RIL will not be liable to make unutilised capacity payments," it said.

The next review of tariff in April 2020 will also consider upward revision to tariff arising from determination of lower revised capacity of the pipeline.

Considering the new investments in the upstream sector in the KG basin, and the growing LNG imports and ability to swap gas, the average volume expected to be transported through the pipeline is expected to be significantly higher compared to the current levels.

RIL will be entitled to a significant participation in the net earnings of PIPL under the mechanism specified in the pipeline usage agreement. RIL's current investment in preference shares valued at Rs 4,000 crore will continue and will be converted into equity at the end of 20 years.

At the end of the period, RIL has the right to acquire equity shares of PIPL held by the InvIT at an equity value of Rs 50 crore.