India puts oil pipeline monetisation plan on hold after PSU resistance

Industry Outlook Team | Wednesday, 01 June 2022

State-owned GAIL, Hindustan Petroleum and Indian Oil may not go ahead with a proposed pipeline monetisation plan, having convinced the petroleum ministry that this would be an expensive way to raise capital, said people familiar with the matter.

The government expected the companies to transfer some of their pipelines to separate infrastructure investment trusts (InvITs) and sell minority stakes in those to raise ₹17,000 crore. The companies have told the government that their high credit ratings, among the best in the country, will allow them to raise capital easily and at a much lower cost than any return they would have to offer InvIT investors, said the people cited above.

Announced in the budget last year, the monetisation plan was aimed at freeing up resources that could then be deployed in new projects, helping boost investment in an economy weighed down by the pandemic. "The pipeline monetisation plan is no more on the table," said one of the persons cited above.

Govt Debating Third Party Option
Oil and gas companies had resisted the idea from the start as they considered pipelines core to their business and key to efficient functioning, said people with knowledge of the matter. The InvIT model may be good for the road sector where the cost of capital is high but not so attractive for state-run oil and gas firms, they had argued.

The monetisation plan has been under discussion by the oil ministry, oil companies and Niti Aayog for more than a year. Niti Aayog, tasked with drawing up asset-monetisation plans for state-run firms, had proposed setting up InvITs housing some oil and gas pipelines.

A Niti Aayog official said the petroleum ministry's task is to identify assets that can be monetised and the Aayog's job is to ensure that the ministry achieves its targets. With the monetisation plan on the backburner, the government is debating whether the oil and gas pipelines of all companies can be managed by a third party or shared, a person cited above said, pointing to telecom firms that do this with towers.

Generally, natural gas pipelines allow a third party to use some part of their capacity, but crude and refined product pipelines are used exclusively by their owners. As per the original monetisation plan, GAIL's Dahej-Uran-Panvel-Dabhol pipeline and Dabhol-Bengaluru pipeline, with a combined length of 2,000 km, were to be monetised first through the InvIT route. GAIL had prepared a detailed plan and sent it to the government for approval several months ago.

InvITs, which typically hold income-generating operational infrastructure assets such as toll roads and bridges, are seen as attractive instruments by investors seeking regular income. For oil and gas companies, InvIT would have been a trade-off between current and future cash flows as the stake sale would yield capital but they would start paying an operating charge for using the assets.