asian development bank pcr: ind 26346 development bank pcr: ind 26346 project completion report on...
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ASIAN DEVELOPMENT BANK PCR: IND 26346
PROJECT COMPLETION REPORT
ON THE
GAS REHABILITATION AND EXPANSION PROJECT (Loan 1285-IND)
IN
INDIA
December 2001
CURRENCY EQUIVALENTS Currency Unit – Rupees (Re/Rs)
At Appraisal
(as of 27 August 1993) At Project Completion (as of 28 February 1998)
Re1.00 = $0.031 $0.025 $1.00 = Rs31.70 Rs39.35
For the purpose of cost comparison in this Report, local currency costs were converted into US dollars at average annual exchange rates.
ABBREVIATIONS ADB – Asian Development Bank APM – Administered Pricing Mechanism EIRR – economic internal rate of return EIL – Engineers India Limited EIA – environment impact assessment EMP – environment management plan FIRR – financial internal rate of return GAIL – Gas Authority of India Limited GLC – Gas Linkage Committee GREP – Gas Rehabilitation and Expansion Project GTC – Gas Turbine Compressor HBJ – Hazira-Bijaipur-Jagdishpur IOC – Indian Oil Corporation Limited INRM – India Resident Mission JEXIM – Export-Import Bank of Japan LA – Loan Agreement LPG – liquefied petroleum gas MPNG – Ministry of Petroleum and Natural Gas NELP – new exploration and licensing policy NEERI – National Environmental Engineering and Research Institute OIDB – Oil Industry Development Board ONGC – Oil and Natural Gas Corporation Limited PIO – project implementation office PSE – public sector enterprise RRP – Report and Recommendation of the President SCADA – supervisory control and data acquisition TA – technical assistance
WEIGHTS AND MEASURES BCM (billion cubic meter) – 1,000 MMCM hp (horsepower) – 746 watts km (kilometer) – 1,000 meters kcal/m3 (kilocalorie per cubic meter) – unit of calorific value of gas volume kg/cm2 (kilogram per square centimeter) – unit of gas pressure kcal/kg (kilocalorie per kilogram) – unit of calorific value of gas weight m (meter) – 1 meter MMBTU (million British thermal unit) – unit of energy MMCM (million cubic meter) – unit of gas volume MMSCMD (million standard cubic meter per day) – unit of gas volume per day
NOTES (i) The fiscal year (FY) of the Government and Gas Authority of India Limited ends on 31
March. FY before a calendar year denotes the year in which the fiscal year ends. For example, FY1998 begins on 1 April 1997 and ends on 31 March 1998.
(ii) In this report, “$” refers to US dollars.
CONTENTS
Page
BASIC DATA
ii
MAP
vii
I. PROJECT DESCRIPTION
1
II. EVALUATION OF IMPLEMENTATION
1
A. Project Components 2 B. Implementation Arrangements 2 C. Project Costs and Financing Plan 4 D. Cofinancing with Export-Import Bank of Japan 5 E. Project Schedule 5 F. Engagement of Consultants, and Procurement of Goods and Services 6 G. Performance of Consultants, Contractors, and Suppliers 7 H. Training 7 I. Conditions and Covenants 7 J. Disbursements 8 K. Environmental Impacts 8 L. Performance of the Borrower and Executing Agency 9 M. Performance of the Asian Development Bank 9 N. Technical Assistance 9
III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS
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A. Financial Performance 9 B. Economic Performance 10 C. Attainment of Benefits 10
IV. CONCLUSIONS AND RECOMMENDATIONS
11
A. Conclusions 11 B. Lessons Learned 12 C. Recommendations 12
APPENDIXES
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BASIC DATA A. Loan Identification 1. Country India 2. Loan Number 1285-IND 3. Project Title Gas Rehabilitation and Expansion Project (GREP) 4. Borrower Gas Authority of India Limited 5. Executing Agency Gas Authority of India Limited 6. Amount of Loan (Net of
cancellation) $157.47 million
First cancellation $65.00 million 17 April 1996 Second cancellation $22.50 million 14 August 1997 Third cancellation $6.00 million 6 April 1998 Fourth cancellation $9.03 million 22 June 1998 7. Project Completion Report
Number PCR:IND 676
B. Loan Data
1. Appraisal
- Date Started 12 August 1993 - Date Completed 27 August 1993
2. Loan Negotiations - Date Started 8 November 1993 - Date Completed 12 November 1993
3. Date of Board Approval 7 December 1993 4. Date of Loan Agreement 17 May 1994 5. Date of Loan Effectiveness - In Loan Agreement 15 August 1994 - Actual 15 August 1994 - Number of Extensions Nil 6. Closing Date
- In Loan Agreement 28 February 1998 - Actual 22 June 1998 - Number of Extensions Nil 7. Terms of Loan
- Interest Rate Six months variable ordinary capital resources rate - Maturity 20 years - Grace period 4 years
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8. Disbursements a. Dates
Initial Disbursement Final Disbursement Time Interval 6 June 1995 22 June 1998 36 months Effective Date Original Closing Date Time Interval 15 August 1994 28 February 1998 42 months
b. Amount ($ million)
No. Category Original Allocationa
Last Revised Allocationb
Net Amount Disbursed
Undis- bursed Balance
1. Construction of pipeline 42.00 46.28 46.28 0.00 2. Compressors 181.50 110.56 110.56 0.00 3. Training 1.70 0.63 0.63 0.00 4. Unallocated 34.80 0.00 0.00 0.00
Total 260.00 157.47 157.47 0.00 C. Project Data
1. Project Cost ($ million)
Item Appraisal Estimate Actual
Cost Overrun/ Savings
Foreign Exchange Cost 646.00 363.28 282.72 Local Cost 362.00 197.16 164.84 Total cost 1,008.00 560.44 447.56
2. Financing Plan ($ million)
Appraisal Estimate Actual
Item Foreign Local Total Foreign Local Total Implementation Costs
Borrower 42.00 187.30 229.30 122.78 178.45 301.23 ADB 260.00 0.00 260.00 157.47 0.00 157.47 Other External
273.70 144.00 417.70 63.83 0.00 63.83
IDC Costs Borrower 70.30 30.70 101.00 19.20 18.71 37.91
Total 646.00 362.00 1,008.00 363.28 197.16 560.44 IDC = interest during construction.
a At signing of the Loan Agreement on 17 May 1994. b Resulting from the cancellation of loan savings of $65 million approved on 17 April 1996, $22.5 million approved
on 14 August 1997, $6 million approved on 6 April 1996, and $9.03 million approved on 22 June 1998.
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3. Cost Breakdown by Project Components ($ million)
Appraisal Estimate Actual Item Foreign Local Total Foreign Local Total A. Base Cost
Land acquisition and civil works
0.00 27.00 27.00 0.00 2.88 2.88
Line pipe and coating 129.00 0.00 129.00 129.47 15.93 145.40Line materials 5.90 0.40 6.30 0.00 6.43 6.43Cathodic protection 7.60 0.00 7.60 0.95 0.15 1.10Compressors 181.50 6.60 188.10 110.56 0.00 110.56Terminals 4.60 1.40 6.00 0.00 2.80 2.80Telecoms and SCADA 12.20 0.00 12.20 5.52 1.10 6.62Pressure upgradation 11.00 2.80 13.80 0.00 0.26 0.26Gas processing plant 86.30 21.90 108.20 50.68 43.09 93.77Pipeline construction 42.00 7.40 49.40 46.27 17.49 63.76Compressor and terminals erection
0.00
9.10
9.10
0.00
10.73
10.73
Institutional strengthening
1.70
0.30
2.00
0.63
0.00
0.63
Consultancy services 2.90 26.30 29.20 0.00 13.71 13.71Taxes and duties 0.00 118.80 118.80 0.00 53.69 53.69Project Management 1.50 13.10 14.60 0.00 9.50 9.50Port inland handling and insurance
0.00
32.50
32.50
0.00
0.69
0.69
Total base cost 486.20 267.60 753.80 344.08 178.45 522.53
B. Contingencies
Physical contingency 48.60 26.80 75.40 0.00 0.00 0.00Price contingency 40.90 36.90 77.80 0.00 0.00 0.00
Total contingencies 89.50 63.70 153.20 0.00 0.00 0.00
C. Interest During Construction
70.30 30.70 101.00 19.20 18.71 37.91
Total 646.00 362.00 1,008.00 363.28 197.16 560.44
SCADA = supervisory control and data acquisition.
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4. Project Schedule
Appraisal Estimate Actual Item Start End Start End
Survey/ROW Land Acquisition Sep 1993 Oct 1994 Jan 1994 Mar 1996 Civil Works Dec 1994 Jul 1996 Dec 1994 Jun 1998 Process Packages Sep 1993 Feb 1994 Sep 1993 Oct 1995 Detailed Engineering Sep 1993 Sep 1995 Sep 1993 Jun 1997 Procurement
Pipelines Ordering Sep 1993 Aug 1994 Sep 1993 Feb 1995 Pipelines Manufacturing and Delivery
Oct 1993 Aug 1995 Mar 1994 Aug 1995
Terminals Ordering Feb 1994 Nov 1994 Feb 1994 Aug 1995 Terminals Manufacturing and Delivery
Sep 1994 Jul 1995 Sep 1994 Jun 1996
Compressor Stations Ordering
Sep 1993 Mar 1995 Jul 1995 Nov 1997
Compressor Stations Manufacturing and Delivery
Jun 1994 Nov 1996 Apr 1996 Feb 1998
Construction Pipelines Tendering Dec 1993 Oct 1994 Dec 1993 Dec 1994 Pipelines Construction Dec 1994 Sep 1996 Dec 1994 Mar 1997 Terminals Tendering Mar 1994 Dec 1994 Mar 1994 Apr 1996 Terminals Construction Feb 1995 Sep 1996 Feb 1995 Jul 1998
Compressor Stations Hazira, Bijaipur and Jhabua Tendering
Nov 1994 Oct 1995 Nov 1994 Dec 1995
Hazira, Bijaipur and Jhabua Construction
Jun 1995 Jul 1997 Apr 1996 Jan 1998
Vaghodia and Khera Tendering
Jun 1994 Oct 1995 Jun 1994 Apr 1996
Vaghodia and Khera Construction
Feb 1995 Jul 1997 Feb 1995 Jul 1998
Cathodic Protection Tendering Aug 1994 Apr 1995 Aug 1994 Apr 1995 Engineering and Procurement
May 1995 Jan 1996 May 1995 Jan 1996
Construction Feb 1996 Jan 1997 Feb 1996 Jan 1997 Telecoms and SCADA
Tendering Sep 1993 Apr 1994 Dec 1995 Jun 1996 Manufacturing and Delivery
Mar 1994 Nov 1995 May 1996 Oct 1998
Gas Processing Plant Tendering and Construction
Nov 1993 Dec 1996 Sep 1997 Nov 1999
System Commissioning Sep 1996 Aug 1997 Feb 1997 Jun 1998 ROW = right of way, SCADA = supervisory control and data acquisition.
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D. Data on Asian Development Bank Missions
Mission
Date
No. of Persons
No. of Person-
Days
Specialization of Members c
Fact-Finding 12–23 Apr 1993 5 60 a, b, d, g Appraisal 12–27 Aug 1993 5 80 a, b, c, d, g Inception 12–22 Mar 1994 3 33 a, e, f Review 1 10–22 Nov 1994 2 26 a, g Review 2 14 May, 20 May, 2 Jul 1996 2 6 a, g Review 3 25–28 Aug 1997 2 8 a, g Review 4 18–20 Aug 1998 2 6 a, g Project Completion Review Missiond
22–24 Aug 2001 4 9 a, e, f, h
c a = engineer, b = financial analyst, c = counsel, d = economist, e = procurement/consultant specialist, f = control
officer, g = programs officer, and h = loan administration staff. d This report was prepared by an ADB Mission that visited the Gas Authority of India Limited during July-August
2001 comprising Vallabha R. Karbar (Mission Leader), J. Srinivasan (Senior Control Officer), V. Ravindranath (Consultant) and Riti Kapoor (Assistant Project Analyst).
I. PROJECT DESCRIPTION 1. India faces the prospect of a constant increase in the gap between energy demand and supply from domestic resources. Natural gas is one of the most efficient and environmentally friendly fuels. With the discovery of substantial free gas reserves in the South Bassein field and other offshore fields under joint ventures, the Government has considered the optimum use of such reserves. The Hazira-Bijaipur-Jagdishpur (HBJ) pipeline was commissioned in 1987 to supply natural gas as feedstock to four fertilizer plants, four power plants, and some industrial units in the states of Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh, Haryana, and Delhi. The HBJ pipeline extends from Hazira to Bijaipur and to Jagdishpur in central India and to Dadri in northern India. The HBJ pipeline was constructed primarily to transport 18 million standard cubic meters per day (MMSCMD) of gas from the western coast to the central and northern parts of India. 2. Oil and Natural Gas Corporation (ONGC) and Government planned to increase the overall availability of natural gas at Hazira from 18 MMSCMD to 42 MMSCMD in a phased manner. Against this background, the Gas Authority of India Limited (GAIL) proposed to increase the capacity of the HBJ pipeline system for transporting 33 MMSCMD of natural gas to the central and northern parts of India. The Gas Linkage Committee (GLC) set up by the Government, consisting of representatives from Ministry of Petroleum and Natural Gas (MPNG), Ministry of Finance, ONGC, Oil India Limited (OIL), GAIL and the ministries of gas consuming industries proposed that the balance of 9 MMSCMD (excluding 2.1 MMSCMD required for ONGC’s internal use) would be utilized by the consumers at Hazira. The project was named the Gas Rehabilitation and Expansion Project (GREP). The additional gas would be transported after new pipelines were laid, new compressor stations installed, and the capacity of existing compressor stations upgraded. The project scope also included installing new gas terminals and upgrading existing gas terminals, as well as installing a new gas processing plant (Appendix 1). 3. The objectives of the Project were to (i) utilize the associated gas being flared at the Bombay High field to conserve energy and improve the environment; (ii) utilize the additional gas available from South Bassein and other offshore satellite gas fields to be brought ashore; (iii) accelerate the utilization of natural gas as a substitute for petroleum products to help reduce oil imports and to substitute coal used for power generation so as to improve the efficiency of energy use and reduce pollution; and (iv) promote increased private sector participation in the gas subsector through the financial restructuring of GAIL. 4. An Asian Development Bank (ADB) loan of $260 million was approved in December 1993. The financing plan has been developed on the basis of discussions held by ADB with the Government, GAIL and other cofinancers. As per this financing plan, ADB, the Export-Import Bank of Japan (JEXIM), the Oil Industry Development Board (OIDB) and GAIL were to finance the project. The main components under ADB’s financing comprise: (i) construction of a 505-kilometer (km), 28-inch diameter pipeline between Bijaipur and Dadri and associated spur lines; (ii) installation of new compressor stations at Vaghodia and Khera for a total of about 132,000 horsepower (hp); (iii) capacity enhancement and upgrading of the existing compressor stations comprising a total of about 77,400 hp at Hazira, Jhabua, and Bijaipur; and (iv) staff training.
II. EVALUATION OF IMPLEMENTATION 5. The chronology of major events in project implementation is given in Appendix 2.
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6. The Loan Agreement was signed on 17 May 1994, became effective on 15 August 1994 and was closed on 28 February 1998 without any extension. However, the loan account was closed on 22 June 1998 to clear the pending disbursements. The loan amount as per the Loan Agreement was $260 million and after four cancellations finally amounted to $157.47 million. The project completion date as per the Loan Agreement was August 1997. The ADB-financed components of the Project were installed by December 1997 and the increased gas intake began in January 1998. Out of two components of the Project, namely telecoms and supervisory control and data acquisition (SCADA) (not financed by ADB), SCADA is due for commissioning by the end of December 2001. A. Project Components 7. No major changes occurred in the scope of the Project. However, minor changes in the size and ratings of some components and equipment were made. An outline of the changes in respect of the pipeline and compressors follows.
1. Pipeline 8. The total length of the pipeline was reduced by 7 km from the envisaged length of 505 km due to realignment of the route; the size of the pipe diameter was increased to 36 inches from 28 inches envisaged at appraisal to provide for future increased supplies. Spur lines of 75 km and 18 inches in diameter between Dadri and Bawana were not laid as the National Thermal Power Corporation did not push through with the gas-based power projects (i.e., the gas users). However, following a directive from the Supreme Court of India for the supply of cleaner fuel than the existing coal, to reduce the pollution and environmental degradation in the vicinity of the Taj Mahal, Agra, two spur lines (of 13 km in length and 14 inches in diameter, and of 52 km in length and 10 inches in diameter) were laid to Mathura and Agra, respectively. These components of the Project were not funded by ADB. However, GAIL advised ADB of these changes and ADB approved them.
2. Compressors 9. There was a change in the horsepower rating of the compressors. For the new compressors at Vaghodia and Khera stations, the envisaged rating was reduced from 132,000 hp to 127,600 hp and for the existing compressor stations at Hazira, Jhabua, and Bijaipur the envisaged rating was reduced from 77,400 hp to 76,000 hp. The changes in the original and actual scope are detailed in Appendix 3. B. Implementation Arrangements 10. The implementation arrangements were the same as envisaged at appraisal and have been found to be satisfactory by ADB. A project implementation office (PIO) was set up at the GAIL’s corporate office, New Delhi headed by a Project Manager (Pipelines) assisted by two project coordinators, one for pipelines and the other for compressors. The Deputy General Manager (Finance) handled the project finance and the Deputy General Manager (Contract and Purchase) handled all purchases. Both reported to the General Manager (Pipelines). The project was periodically monitored by the GAIL board (four times a year). The implementation arrangement was considered adequate by ADB as overall coordination existed and a proper project management system was in place. The project implementation structure is provided in Appendix 4.
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11. Engineers India Limited (EIL), New Delhi were appointed as consultants for the Project and were to provide consultation, design, engineering, quality assurance/quality control, construction management, construction, and execution services. For better coordination of the project activities, EIL also set up a central coordination site office at Noida (Uttar Pradesh), for mainline laying and terminal work, and another office for coordination of compressor stations at Vaghodia and Khera, headed by respective resident construction managers reporting directly to the Project Manager, EIL, New Delhi. The resident construction managers, assisted by a group of specialist engineers, monitored the activities related to all the three pipeline construction spreads, terminals, and compressor stations.
1. Pipeline from Bijaipur to Dadri 12. The total length of 505 km of pipeline as envisaged during project appraisal was to be laid from Bijaipur in Madhya Pradesh to Dadri in Uttar Pradesh. Keeping in view the length of the pipeline, the terrain through which it had to be laid, and the implementation schedule, GAIL decided to divide the total length of pipeline into three spreads. Each spread was headed by a spread-in-charge directly reporting to the General Manager (P/L), Corporate Office, New Delhi through the Project Coordinator. The total length of pipeline actually laid was 498 km. 13. Spread 1 stretches from Bijaipur to Burdha in Madhya Pradesh, with a pipeline length of about 170 km. The office for the spread was located at Shivpuri in Madhya Pradesh. 14. Spread 2 stretches from Burdha in Madhya Pradesh to Bhajhera in Rajasthan. The total length of pipeline is about 165 km. The spread office was located at Bharatpur in Rajasthan. This spread was the toughest of the three because of the rocky and rough terrain, and hostile site conditions. 15. Spread 3 stretches from Bhajhera in Rajasthan to Dadri in Uttar Pradesh with a total pipeline length of about 163 km. The spread office was located at Noida. 16. The actual length after laying the pipeline is 498 km. The reduction in length is mainly due to route alignments made on site. This saving also resulted in a reduction of pipeline bending and other expensive construction materials. The Bijaipur-Dadri pipeline had to cross two major rivers, the Yamuna and the Chambal, and this was done through horizontal directional drilling.
2. Compressor Stations
17. The additional gas flow was to be achieved by increasing the pressure of natural gas at intermediate compressor stations between Hazira and Bijaipur. Two new compressor stations were installed at Vaghodia and Khera. The existing compressor stations at Hazira, Jhabua, and Bijaipur were upgraded to handle the additional gas throughput. All the compressors were installed and commissioned. A brief description of each compressor station follows.
a. Hazira Compressor Station 18. Hazira compressor station is located at Hazira, 12 km west of Surat in Gujarat. Hazira is also the custody transfer point of natural gas from ONGC to GAIL. The natural gas after the gas sweetening unit (GSU) of ONGC is supplied to GAIL, Hazira for further distribution through the HBJ system. The pressure of the gas is 46 kg/cm2 and the gas throughput is 33 MMSCMD. Two
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new gas turbine compressor (GTC) units were installed at Hazira compressor station in December 1997 with a rating of 24,150 hp each.
b. Vaghodia Compressor Station 19. Vaghodia compressor station is located at Vaghodia, about 25 km from Baroda and about 150 km (pipeline length) from Hazira, in the state of Gujarat. The compressor station was constructed adjacent to GAIL’s existing liquefied petroleum gas (LPG) recovery plant. To enhance the gas pressure from the existing 50 kg/cm2 to 93 kg/cm2, three new GTC units were installed in December 1997 with a rating of 19,870 hp each. The throughput of the station is 31.60 MMSCMD.
c. Jhabua Compressor Station
20. Jhabua compressor station is located at Jhabua, which is about 150 km (pipeline length) from Vaghodia, in the state of Madhya Pradesh. Jhabua compressor station is one of the existing stations on the HBJ pipeline route. To enhance the gas pressure from the existing 54 kg/cm2 to 93 kg/cm2, three new GTC units were installed in December 1997 with a rating of 9,150 hp each. The throughput of the station is 31.30 MMSCMD.
d. Khera Compressor Station 21. Khera compressor station is located at Khera, 55 km from Ujjain and 150 km (pipeline length) from Jhabua, in the state of Madhya Pradesh. To enhance the gas pressure from the existing 46kg/cm2 to 93 kg/cm2, three new GTC units each of 22,660 hp rating were installed in December 1997. The throughput of the compressor station is 31.00 MMSCMD. C. Project Costs and Financing Plan 22. At appraisal in August 1993, the project cost was estimated at $1,008 million equivalent, comprising $646 million (64.09 percent) in foreign currency and $362 million (35.01 percent) in local currency. The actual project cost at loan closing was $560.44 million equivalent, comprising $363.28 million (64.82 percent) in foreign currency and $197.16 million (35.18 percent) in local currency. The ADB loan at appraisal was $260 million and was utilized to the extent of $157.47 million (60.56 percent) only. Cost savings of $447.56 million equivalent (44.4 percent) comprised $282.72 million in foreign currency and $164.84 million in local currency. Appendix 5 provides a comparison of estimated and actual project costs. Appendix 6 provides the average exchange rates used in converting local currency to the dollar equivalent. 23. At appraisal, GAIL’s contribution to the Project was estimated at $260 million (25.79 percent), with the balance of $748 million to be financed by ADB ($260 million), JEXIM ($170 million), suppliers’ credit ($174 million), and OIDB ($144 million). According to actual project cost estimates, GAIL’s contribution is $339.14 million (60.51 percent) and borrowings from ADB and JEXIM are $221.3 million (39.49 percent). No funds were used from OIDB or suppliers’ credit. Appendix 7 gives a comparison between the financing plan at appraisal and actual financing. The share of ADB increased from 25.79 percent to 28.10 percent, despite the decrease in the loan amount from $260 million to $157.47 million. 24. The foreign exchange cost savings are attributable to (i) lower than estimated cost of compressor procurement ($70.94 million) due to intense competition in the international market at that time (1994-1995) and reduction in total capacity of compressors installed from
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132,000 hp to 127,000 hp; (ii) savings due to lower than envisaged imported components under the gas processing package ($43.21 million); (iii) savings in physical and price contingency ($89.5 million) that were not needed because of lower prices obtained from international competitive bidding and prudent project management/implementation; (iv) savings in consultancy charges ($2.9 million) as the consultancy charges were paid in local currency by deploying local staff; and (v) savings in interest during construction ($55.10 million) as the actual foreign currency component of the cost of the Project was substantially lower than appraised cost, and the funds from JEXIM were drawn down after the Project was commissioned. Local currency savings in dollar terms are largely due to (i) savings in physical and price contingencies ($63.70 million) that were not needed; (ii) savings in taxes and duties ($65.11 million) due to savings in basic prices of equipment; (iii) savings in consulting services ($12.59 million), as the Project was executed at much lower cost than the appraisal estimate; (iv) savings in ports, inland handling, and insurance charges ($31.81 million) due to a higher than required estimate at appraisal; and (v) savings in interest during construction ($11.99 million) as the actual total cost of the project was substantially lower than the appraised cost. D. Cofinancing with the Export-Import Bank of Japan 25. JEXIM entered into a loan agreement with GAIL on 20 February 1998, to lend $80 million for financing the procurement of (i) line material ($6 million), (ii) telecoms and SCADA ($3.1 million), (iii) cathodic protection ($4 million), (iv) terminals ($0.7 million), (v) pressure upgrade equipment ($0.2 million), and (vi) the gas processing plant ($66 million). A colender agreement was also entered into between JEXIM and ADB on 20 February 1998. The procurement of goods and services to be financed under the JEXIM loan were to be governed by the provisions of the ADB Loan Agreement. Two disbursements totaling $63.83 million were made by JEXIM after examination by ADB before the loan closing date of 22 June 1998. E. Project Schedule 26. The actual and original implementation schedules are compared in Appendix 8. The system was to be commissioned by August 1997. The civil works commenced as per schedule in December 1994. However, the civil works associated with completion of the entire project were completed in June 1998, instead of the scheduled date of completion of June 1996. This was due to the minor civil works, which were carried out as and when required till the end of project execution, but had not been considered during appraisal in finalizing the civil works schedule.
1. Pipelines 27. The ordering started as per schedule in September 1993 but the process was completed with a delay of six months; however, this delay was made up during manufacturing and delivery of the pipes, which were completed as scheduled by August 1995. Completion of construction activities for the pipelines was scheduled for September 1996, but was delayed to March 1997. This six-month delay was on account of heavy rains and floods affecting spread 2 of the pipeline. 2. Compressors 28. The ordering for compressors started only in July 1995 instead of the scheduled September 1993. The delay was due to late approval of the vendor by the Ministry of Petroleum
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and Natural Gas. This late start had an influence on the ordering cycle, which was completed only in November 1997 instead of June 1995, that is, a delay of almost 28 months. Consequently, there was a delay in the manufacture and delivery of the compressors of 14 months. During construction, there were delays to the extent of seven to 12 months; these were due to late mobilization by the site contractors. 29. The pipeline and compressors were commissioned in December 1997 with a delay of six months. Thus, in spite of the long delays referred in para. 28, GAIL was able to catch up on lost time by effective project management and by commissioning the system in parts.
3. Telecommunications and SCADA
30. The commissioning and installation of the SCADA system were scheduled for completion by November 1995. However, this is now expected to be completed in December 2001. The delay was mainly on account of differences between ADB and GAIL on the procurement process, and finally the item was taken out of ADB financing.
4. System Commissioning 31. The system commissioning started in February 1997 as against the schedule of August 1996 and was completed in July 1998 instead of August 1997. However, the project components financed by ADB were completed in December 1997 and the increased gas flow commenced in January 1998. Thus there has only a marginal delay of four months for the increased gas offtake to begin, which was the basic objective of the Project. F. Engagement of Consultants and Procurement of Goods and Services
1. Consultants 32. As decided at appraisal, GAIL, from its own resources, appointed an experienced Indian engineering firm, EIL, as consultants to (i) carry out basic and detailed design and engineering of all project components; (ii) assist in procurement of equipment and materials; (iii) carry out quality assurance and quality control of materials, equipment, and construction; (iv) provide project management services, including monitoring and progress reporting activities; (v) provide commissioning and start-up assistance; and (vi) prepare an environmental impact assessment (EIA). EIL was supported by an international consulting firm, Det Norske Veritas, to review the basic engineering and design of the GREP pipeline. Consultants were engaged following ADB’s Guidelines on the Use of Consultants.
2. Procurement 33. GAIL carried out procurement for ADB-financed contracts in accordance with ADB’s Guidelines for Procurement. As decided at appraisal, GAIL also carried out procurement for JEXIM-financed contracts in accordance with ADB’s Guidelines for Procurement. In the interest of the Project, ADB approved advance procurement action for the compressors in May 1993. The list of contract awards is given in Appendix 9. While the overall compliance of the Executing Agency was satisfactory, there were delays in a few cases of procurement, especially compressors. The time from invitation to bid (ITB) to contract recommendation was 21 months. The main reasons for this delay were (i) prolonged clarifications sought by the bidders and (ii) late approval received by GAIL from the Ministry of Petroleum and Natural Gas.
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G. Performance of Consultants, Contractors, and Suppliers
1. Consultants
34. The consultant appointed for the project were EIL and they were responsible for design, engineering and implementation/execution. These consultant were financed by GAIL from its internal resources. The EIA was completed satisfactorily. Clearance of the engineering drawings and issuance of approved construction drawings were delayed in some cases. Some delays also occurred in the areas of coordination in various site execution activities. However, EIL’s overall performance was satisfactory.
2. Contractors and Suppliers 35. The ADB-financed contracts for the procurement of goods were (i) the pipelines for which two contracts were concluded and (ii) the compressors. The contracts for the pipelines were given to two Indian suppliers who performed well and delivered the items on time. The GTC packages were awarded to two international suppliers who did not perform well since supply of GTC packages were delayed by 4.5 months. 36. The civil and structural contractors did not perform well. They all exceeded the time schedule specified in their contracts. This contributed to a ripple effect for the other mechanical and electrical/instrumentation contractors (the requisite fronts for construction were not given to these contractors on time). 37. GAIL reported that the performance of the other international and domestic contractors and suppliers was generally satisfactory. All the goods complied with the specifications and other parameters in the contracts and no significant difficulties were experienced. H. Training 38. Ninety-two staff members of GAIL were trained in different fields covered in the training program at facilities abroad over 54.26 person-months against appraisal estimates of 200 person-months. The trainers were sent to gas training institutes and specialized firms in Germany, Italy, UK, and US. The fields included gas transmission pipelines, procurement, demand and supply management, international gas contracts, international finance management of oil and gas operations, cathodic protection, and design and coating inspection. The participants greatly benefited from the training and are using the knowledge and information gained in their jobs. Training courses are listed in Appendix 10. Of the 15 scheduled training contracts/programs, only 12 were successfully conducted, and the remaining 3 were not conducted. Of the original training allocation of $1.7 million, GAIL used only $633,000. GAIL conducted continuous training (international and domestic) programs for its staff at all levels using its own resources; as part of the package, the suppliers of compressors have provided training on compressor operation and maintenance to the technical staff of GAIL. I. Conditions and Covenants 39. The status of compliance with key covenants under the loan is given in Appendix 11. Most of the loan covenants were complied with except for the covenants on the guarantor (the Government): (i) to reduce its equity ownership by not less than 30 percent, (ii) establishment of a gas regulatory authority, and (iii) gas price deregulation. On divestment of the Government’s equity in GAIL, the divestment is 32.65 percent. However, the actual divestment to the general
8
public, private corporate sector, and financial institutions is only 21.73 percent. The balance (10.912 percent) was divested to ONGC (4.829 percent), IOC (4.829 percent), and Life Insurance of India (1.26 percent). On gas pricing, the Government has partially deregulated the gas pricing mechanism by linking it to the international fuel price to the extent of 75 percent, with floor and ceiling prices. The Government has indicated that it intends to deregulate pricing completely from 1 April 2002. The Government is also considering setting up a gas regulatory authority for the transport and distribution of gas, and for setting the prices of gas and downstream products. It is expected that the gas regulatory authority will be established by 31 March 2002. A brief note on the issues involved in the pricing mechanism in the hydrocarbon sector is given in Appendix 12. J. Disbursements 40. Disbursements under the loan totaled $157.47 million out of the original loan amount of $260 million. A total of $102.53 million was cancelled in four stages as loan savings. Initial disbursements under the loan started on 6 June 1995 and the final disbursement was on 22 June 1998, with a time interval of 36 months. The disbursement was lower than projected in initial years due to delays in procurement. The actual and projected disbursements are given in Appendix 13. K. Environmental Impacts 41. There has been no adverse effect on the environment as a result of the new facilities. All project facilities were designed with environmental protection, controls, and safety devices. There was a delay in the installation of cathodic protection and in the extension of the telecommunications and SCADA facilities. The contract for SCADA was signed in June 1998 and the commissioned system is expected to be handed over to GAIL by end-December 2001. Since the line was commissioned before the completion of the SCADA system, a minimal SCADA system was installed by Foxboro, Australia, to cover the GREP portion of the pipeline as an interim measure. GAIL informed the ADB PCR Mission that this system is as effective as the proposed SCADA system and that it has not encountered any problem in assuring safety to date. GAIL needs to submit an assurance to ADB after SCADA installation that all safety measures are in place. 42. The loan covenant on mitigating measures outlined in the EIA (Loan Agreement, Schedule 5, para. 11[c]) provided for a citizens’ committee to be set up. This was subsequently changed to referring the issue to the National Environmental Engineering and Research Institute (NEERI) for recommendation. NEERI reviewed the status of implementation of mitigating measures as per the environment management plan (EMP) and submitted a report on this in February 1999. The conclusions stated that GAIL had effectively implemented most of the EMP outlined in the EIA. However, NEERI stressed a few areas, including (i) the existing method of disposal of sewage is unsafe; (ii) GAIL’s system of collecting waste oil during maintenance of compressor houses and selling to outside parties needs to be continued as it prevents environmental pollution and also generates additional revenue to GAIL; (iii) GAIL’s monitoring and surveillance of pipelines and installations should be on a continuous basis; and (iv) GAIL should pursue compensatory afforestation and tree plantation. During PCR Mission, GAIL confirmed that it had fully complied with these recommendations.
9
L. Performance of the Borrower and Executing Agency 43. GAIL was both the Borrower and Executing Agency. Its performance was satisfactory. However, it took a long time in finalizing the order for compressor stations. Also, it delayed the tendering for SCADA. Despite these delays, the Project was not adversely affected due to GAIL’s prudent project management and implementation. The training of GAIL staff was delayed and the first program began only in May 1996. However, as part of its corporate policy, GAIL has regularly conducted overseas and domestic training programs using its own funds. M. Performance of the Asian Development Bank 44. ADB closely monitored project progress, conducted regular monitoring through review missions, and provided useful advice in several areas including procurement, project management, and staff training. 45. In addition to regular ADB review missions, the India Resident Mission also closely monitored project administration. There were many tripartite meetings between ADB, GAIL, and Department of Economic Affairs officials. GAIL management and staff involved in project implementation found these meetings very useful and effective, since it led to improvement in GAIL’s management and staff’s performance. Various corrective measures were suggested and implemented as a result of these reviews. N. Technical Assistance 46. The Government entered into an agreement with ADB on 17 May 1994 on technical assistance (TA), to undertake a detailed examination for introducing an effective regulatory system for gas transmission in India. Consultants were to carry out the TA from June 1994 and complete it within nine months. 47. The TA was to be carried out by a consulting firm utilizing 18 person-months of international consulting services and six person-months of local consulting services. A UK consulting firm, along with its Indian associates, was selected for the TA. The consultants carried out their assignments from May 1995 to November 1997 and made recommendations for the regulatory framework. The consultants recommended the creation of a central gas regulatory commission to be set up for regulating interstate transmission of gas and state level regulating bodies for local gas distribution. The Government is likely to enact legislation by the end of 2001 for establishing a gas regulatory authority. The TA completion report is attached as Appendix 14.
III EVALUATION OF INITIAL PERFORMANCE AND BENEFITS A. Financial Performance 48. At appraisal, the rate of return on the average net fixed assets was projected to range from 29.4 percent in FY1994 to 55.7 percent by FY2002, and the self-financing ratio was projected to range from 86.1 percent in FY1994 to 214.4 percent by FY1998. At appraisal, no major capital expenditures were budgeted after FY1998. GAIL’s financial statements indicate that the rate of return on the average fixed assets ranged from 29.3 percent in FY1994 to 27.0 percent in FY2001, after peaking at 47.8 percent in 1998. One of the major reasons for the lower return on assets is the fact that the sale price (in 1993 constant prices) is only Rs2,682 per MMCM as against the appraisal projection of Rs3,162 per MMCM. Similarly, the producer
10
price per MMCM amounts to Rs1,804 per MMCM against the appraisal estimate of Rs2,066 per MMCM. As a consequence, the gross contribution per MMCM is only Rs878 per MMCM, against the appraisal estimate of Rs1,096 per MMCM. The self-financing ratio ranged from 42.0 percent in FY1994 to 68.0 percent in 2001, after peaking at 162.0 percent in 1997. GAIL has continued to be conservatively geared, with the debt-equity ratio staying at about 30-35 percent only, as against the appraisal projection of a ceiling of 70 percent. Balance sheets, income statements, cash-flow statements, and ratio analysis of GAIL are in Appendix 15, Appendix 16, Appendix 17, and Appendix 18, respectively. 49. The financial reevaluation of the Project was done on an incremental basis, using the gas sales data provided by GAIL. The total actual costs of the Project, including additional facilities for gas processing at Pata, were considered. The recalculated posttax FIRR is 18.8 percent, against the appraisal estimate of 15.0 percent. The reevaluation has been carried out assuming that the present Administered Pricing Mechanism (APM) for gas will continue. However, if the APM were to be dismantled as intended by the Government from April 2002, and the price linked to 100 percent parity with fuel oil, the posttax FIRR would work out at 13.31 percent. Major assumptions used in the financial reevaluation are in Appendix 19, and the detailed calculations for FIRR are in Appendix 20. The FIRR is higher than estimated, as the project cost has amounted to Rs22,475 million (in constant 2001 prices) as compared with Rs45,735 million (in constant 2001 prices) estimated at appraisal. There has been a saving of about 51 percent in the capital investment. B. Economic Performance 50. The economic reevaluation of the Project was carried out on an incremental basis, considering (i) actual purchase records from FY1998 to FY2001, after which the purchase of gas has been straight-lined; (ii) economic costs of the Project (based on financial costs adjusted for duties and taxes); (iii) the border price for a basket of fuel oils as determined by GAIL from time to time. The purchase price of gas has been equated to the thermal equivalent of fuel oil. At the margin, it has been estimated that the incremental gas has replaced fuel oil to the extent of 30 percent of the incremental output, and the remaining 70 percent has replaced naphtha. The cost of additional facilities created at Pata for extraction of LPG, and the additional realization on account of the sale of such LPG has been considered in the reevaluation. The prices of fuel oil, naphtha, and LPG have been estimated at $110 per ton, $235 per ton, and $225 per ton, respectively, as advised by GAIL. The EIRR is calculated at 30.5 percent, as against the appraisal estimate of 26.4 percent. Major assumptions used in the economic reevaluation are in Appendix 19 and the detailed calculations for the EIRR are in Appendix 21. The EIRR is higher than the appraisal estimate as (i) the economic capital cost in constant 2001 prices is lower than the economic cost estimated at appraisal, a saving of 43.0 percent; and (ii) the prices of fuel oil and naphtha were assumed to be $71 per ton and $172 per ton, respectively, as against the realization of $110 per ton and $235 ton at present. C. Attainment of Benefits
51. At appraisal, it was envisaged that the pipeline would have the capacity to transport 33.4 MMSCMD of natural gas to central and northern India. The actual gas intake for the project life of FY1998 to FY2001 shows a gradual increase in the volume of gas transported starting from 25 MMSCMD to 33.5 MMSCMD in 2001. This indicates that the system has been capable of attaining the benefit of transporting the volume of gas envisaged at appraisal. GAIL informed ADB that the reasons for the lower volume of gas in the initial years was due to less supply from ONGC. The average monthly gas intake from January 1998 is given in Appendix 22.
11
52. Additional gas supplies from the Project have helped meet the country’s energy shortage. The major consumers of the additional gas supply have been fertilizer plants, power plants, existing LPG recovery plants, and a petrochemical complex. The Project also contributed to improving the environment in western, central, and northern India by substituting gas for coal. 53. The HBJ pipeline, with its expanded capacity, has helped eliminate gas flaring in the Bombay High field. Besides the economic benefits, this has reduced carbon dioxide emissions that contribute to greenhouse gases and global warming. 54. A large number of small consumers have also been the beneficiaries of the additional gas supplies from GAIL. By Government encouraging private sector participation, the gas-supplying agencies like GAIL and ONGC can contemplate more investments. Another beneficiary of this Project has been the Taj Mahal at Agra. The coal that caused pollution has been replaced by cleaner natural gas in this area.
IV. CONCLUSIONS AND RECOMMENDATIONS A. Conclusions 55. The primary objective of the Project as defined in the Loan Agreement was for enhanced utilization of natural gas. The specific target of the system to cater to 33 MMSCMD of gas has been met. The components of the Project financed by ADB are the pipelines and the compressor stations. These have been commissioned and are in use. 56. ADB-financed components of the Project were commissioned with a delay of four months only and there have been substantial savings in the overall cost of the project. The actual project cost at completion was $560.44 million equivalent compared with the appraisal estimate of $1,008.00 million equivalent. The posttax FIRR is calculated at 18.8 percent against 15.0 percent computed at appraisal; the EIRR is computed at 30.5 percent against 26.4 percent at appraisal. 57. GAIL has complied with the loan covenants including those related to financial ratios. The Government has not complied with the covenants on gas pricing, equity dilution, and establishment of an independent gas regulatory authority. The present status of these issues is briefly discussed in Appendix 11. 58. Implementation of the SCADA system was delayed, and the installation of the system is yet to be completed (para. 41). However, a minimal SCADA system has been installed to cover the GREP portion of the pipeline as an interim measure. GAIL needs to submit an assurance to ADB after SCADA installation that all safety measures are in place. 59. GAIL has conducted an EIA through its consultants, EIL. The consultants have submitted mitigating measures to be taken by GAIL under an EMP. GAIL has implemented most of the recommendations and asked NEERI to conduct a study, which concluded that GAIL had effectively implemented most of the EMP measures. However, NEERI emphasized that a few areas still needed remedying. During subsequent discussions with ADB review missions, GAIL confirmed that it had fully complied with these requirements. 60. The Project is classified as successful. This is in view of the achievement of the Project’s main objectives; prudent management by GAIL staff in implementation of the Project, despite
12
some delays in procurement; commitments shown by GAIL and the Government to comply with the covenants; and a higher FIRR than the appraisal estimate. B. Lessons Learned 61. ADB has learned several important lessons through the Project. Its discussions with the Government under the Project helped prompt the Government to undertake various measures in liberalizing the oil and gas sector. On gas pricing, the Government has partially deregulated the gas pricing mechanism by linking it to the international fuel price to the extent of 75 percent, with floor and ceiling prices. The Government is also considering establishing a gas regulatory authority for regulating the transport and distribution of gas, including fixing the prices of gas and downstream products. 62. As a share of the net ADB loan, the surrendered amount is almost 40 percent. There is therefore an element of overestimation at the appraisal stage and this needs to be looked into for future projects. There have been substantial savings made under the Project. A more realistic assessment of project costs should be made at appraisal (para. 24). 63. Despite the delay in ordering the compressors (from July 1993 to April 1995), the Project was completed with only four months delay, and the ADB-financed components of the Project were completed on time. This shows that there is still some scope for reducing the time schedule by effective appraisal. It is suggested that during appraisal, detailed discussions should be held with the Executing Agency and resident mission staff to finalize the implementation schedule. This should result in a far more realistic schedule. 64. GAIL has not used the provisions for physical and price contingencies. These two accounted for almost 15 percent of the total project cost. This indicates that the estimates for the various components of the Project were adequate and that the project implementation practices of GAIL are good. There is therefore every reason for a more realistic cost estimation exercise to be conducted at the appraisal stage itself. 65. ADB observed that the training components were delayed and were not utilized to the extent provided for under the loan (para. 38). This was due to lack of proper assessment and planning during appraisal. In future projects, ADB will need to undertake a realistic assessment of the training needs of the Executing Agency. C. Recommendations 66. GAIL took a long time in evaluating bids. There is therefore a need for installing a procurement/monitoring system for cutting down these delays. GAIL needs to establish a database of various contracting firms in the petroleum sector to reduce time in clarifying the technical experience and capabilities of the bidders. 67. GAIL must provide adequate training to its staff for upgrading their professional skills. Although its budget for training has increased in recent years, GAIL should streamline the needs of personnel working in different disciplines and organize training in a scheduled manner to derive the full benefits of training courses. 68. As the APM for natural gas is proposed by Government to be dismantled and prices linked with international fuels, with expectations of full parity in April 2002, GAIL should be prepared to take full advantage of free market opportunities after that date. It is estimated that
13
the gap between supply and demand for gas would be increasing from 70 MMSCMD at present to 200 MMSCMD in 2011. Since the quantity available from Indian gas fields is not likely to go up in the future, there will be a considerable demand-supply gap which could be met by importing gas from overseas. This need for gas in India could be leveraged by GAIL to promote its business prospects overseas in the area of natural gas. This could be done if GAIL were to tie up with an experienced exploration player like ONGC and stake their claim in equity projects overseas for the exploration and production of natural gas with a view to bring it to India. Gas is sufficiently available in neighboring countries of India like Bangladesh, Myanamar and Indonesia. 69. In October 1997, the Government conferred navratna1 status on GAIL, which gives it greater financial and managerial autonomy. More powers should be given to GAIL so as to allow it to be run on a commercial basis to enable it to operate on market principles. It is also expected that the Government will establish a gas regulatory authority to ensure fair open and transparent business in the gas industry.
70. ADB should monitor the progress made by the Government in dismantling the APM as well as the establishment of the gas regulatory authority and future developments in Indian gas sector by December 2002. 71. In addition to regular ADB review missions, the India Resident Mission should consider close monitoring as this helps ADB to secure regular and timely feedback. 72. GAIL should submit an assurance to ADB regarding safety after installation of the SCADA system. 73. Due to the proposed dismantling of the APM by April 2002 and the opening up of the hydrocarbon sector to private investment, including retailing of finished products, it is expected that substantial private investment will flow into the sector. Adequate commercial financing should be available to support any project proposal. However, there are proposals for subregional cooperation between India and its neighboring countries involving transborder pipelines, which ADB may consider.
1 Navratna status allows a company to incur capital expenditures of up to Rs3 billion, and enter into joint ventures
with private companies involving an investment of up to Rs1 billion, without prior government approval.
14
APPENDIXES Number Title Page
No. Cited on (page, para )
1 Project Scope 15 1,2
2 Chronology of Main Events in Project Implementation 16 1,5 3 Original and Actual Project Scope 19 2,9 4 Project Implementation Structure 21 2,10 5 Project Costs (Original versus Actual) 22 4,22 6 Annual Average Exchange Rate for Rupee and Dollar 23 4,22 7 Project Financing Pattern 24 4,23 8 Project Implementation Schedule (Original versus Actual) 25 5,26 9 List of Contract Awards 28 6,33 10 Status of International Training of Gas Authority of India
Limited staff 31 7,38
11 Status of Compliance with Major Loan Covenants 33 7,39 12 Policy Issues on the Pricing Mechanism in the
Hydrocarbon Sector 37 8,39
13 Projected and Actual Disbursements of Loan Proceeds 39 8,40 14 TA Completion Report 40 9,47 15 Gas Authority of India Limited, Balance Sheets, 1994-
2001 42 10,48
16 Gas Authority of India Limited, Income Statements, 1994-2001
43 10,48
17 Gas Authority of India Limited, Cash Flow Statements, 1994-2001
44 10,48
18 Gas Authority of India Limited, Ratio Analysis, 1994-2001 45 10,48 19 Assumptions used for Calculating Financial Internal Rate
of Return and Economic Internal Rate of Return 46 10,49
20 Financial Internal Rate of Return 48 10,49 21 Economic Internal Rate of Return 50 10,50 22 Monthly Average Gas Intake 51 10,51
15
Appendix 1 PROJECT SCOPE
The project scope comprised the following:
(i) construction of a 505-kilometer long, 28-inch diameter pipeline between Bijaipur
and Dadri and spur lines to Bawana (75 kilometers long, 18 inches in diameter), and Faridabad (10 kilometers long, 12 inches in diameter);
(ii) installation of new compressor stations at Vaghodia and Khera comprising a total of about 132,000 horsepower (hp);
(iii) capacity enhancement and upgrading of the existing compressor stations comprising a total of about 77,400 hp at Hazira, Jhabua, and Bijaipur;
(iv) installation of cathodic protection, telecommunications, and supervisory control and data acquisition (SCADA) facilities;
(v) installation of new gas terminals at Faridabad, Bawana, and Jagdishpur, and upgrading of existing gas terminals at Hazira, Bijaipur, and Aonla;
(vi) installation of a new gas processing plant of 12.7 million cubic meters per day capacity at Auraiya;
(vii) consulting services for engineering, project implementation, and construction supervision; and
(viii) human resources development.
Note: The portion financed by the Asian Development Bank comprises numbers (i), (ii), (iii), and (viii).
16
Appendix 2, page 1
CHRONOLOGY OF MAIN EVENTS IN PROJECT IMPLEMENTATION
Date Event 1991 4 Apr Asian Development Bank (ADB) approved a loan for a special assistance
project.1 14 Nov ADB approved a loan of $267 million to Oil and Natural Gas Corporation
Ltd. (ONGC) to carry out further development of Gandhar field.2 17 Dec ADB approved a program loan3 of $250 million for the hydrocarbon sector.
1992 31 Dec ADB approved a technical assistance of $100,000, to carry out a study for
financial restructuring of Gas Authority of India Ltd. (GAIL) and to reconfirm that the proposed rehabilitation and expansion scheme represented the optimum design.4
1993 1 Mar First listing in ADB Business Opportunities. 30 Mar ADB approved a loan of $300 million to ONGC for recovering the flared
gas from the Bombay High field and simultaneously transporting additional gas supply from other offshore fields.5
12 Apr Concept clearance approved. 12–23 Apr Fact-finding. 30 Jul Management review meeting. 12–27 Aug Appraisal. 29 Oct Staff review committee meeting. 8–12 Nov Loan negotiations. 16 Nov Board circulation. 7 Dec Board approval.
1994 12–22 Mar Inception mission. The mission met with officials from GAIL, to discuss
project implementation matters—procurement, disbursement, training, reporting, and proposed change in project scope.
17 May Loan agreements and project agreements signed. 15 Aug Loan was declared effective. 10–22 Nov Review mission (1). The mission met with officials from GAIL, to discuss
project implementation matters, proposed change in project scope, and the compliance status of the loan covenants.
1 Loan 1081-IND: Special Assistance project, for $150 million, approved on 4 April 1991. 2 Loan 1117-IND: Gandhar Field Development project, for $267 million, approved on 14 November 1991. 3 Loan 1148-IND: Hydrocarbon Sector Program project, for $250 million, approved on 17 December 1991. 4 TA 1837-IND: Natural Gas Rehabilitation and Expansion project, for $100,000, approved on 31 December 1992. 5 Loan 1222-IND: Gas Flaring Reduction project, for $300 million, approved on 30 March 1993.
17
Appendix 2, page 2 1995 16 May Award of contract for laying of pipeline system for Bijaipur to Dadri and
spur line to Faridabad (Part II) for Rs331.98 million and $2.72 million. 6 Jun First disbursement under the loan. 7 Jul Award of contract for laying of pipeline system for Bijaipur to Dadri and
spur line to Faridabad (Parts I and III) for $29.28 million. 28 Nov Award of contract for supply of centrifugal gas compressor packages for
three stations for LIT0.22 million and $86.65 million. 28 Nov Award of contract for supply of centrifugal gas compressor package for
compressor station Jhabua for LIT29.19 billion and $0.57 million.
1996 20 Feb Award of contract for laying of pipeline through horizontal directional
drilling for Part I (Chambal) and Part II (Yamuna) for $4.66 million. 14 Mar Award of contract for overseas training in gas despatch for DM0.04 million
and Rs0.59 million. 1 Aug Award of contract for training of GAIL personnel abroad on international
financial management of oil and gas operation for Rs3.22 million. 1 Aug Award of contract for training of GAIL personnel abroad on international
gas contracts—commercial factors and negotiation for Rs1.28 million. 29 Nov Award of contract for installation, testing, and commissioning of gas
engine generator packages for Vaghodia and Khera compressor station for Rs20.77 million and $4.94 million.
14–20 May Review mission (2). The mission met with officials from GAIL, Ministry of Petroleum and Natural Gas (MPNG), and Department of Economic Affairs (DEA) to discuss project implementation matters, proposed cancellation, and the compliance status of the loan covenants. The mission visited a project site at the Chambal river in Madhya Pradesh.
17 Apr First partial cancellation of loan amount of $65.00 million.
1997 12 Jan Award of contract for training plan of GAIL employees for Rs18.33 million. 14 Aug Second partial cancellation of loan amount of $22.50 million. 25–28 Aug Review mission (3). The mission met with officials from GAIL, New Delhi,
Bijaipur, and Vaghodia, MPNG, and DEA, to discuss project implementation matters and the status of compliance with loan covenants under the hydrocarbon sector projects with a view to expediting the processing of the proposed liquefied petroleum gas (LPG) pipeline project. The mission visited sites at Bijaipur and Vaghodia.
1998 28 Feb Loan closing date. 6 Apr Third partial cancellation of loan amount of $6.00 million. 22 Jun Fourth and final partial cancellation of loan amount of $9.03 million. 22 Jun Final disbursement under the Project. 22 Jun Loan closed. 28 Feb Loan closing date. 6 Apr Third partial cancellation of loan amount of $6.00 million. 22 Jun Fourth and final partial cancellation of loan amount of $9.03 million.
18
Appendix 2, page 3 22 Jun Final disbursement under the Project. 22 Jun Loan closed. 18–20 Aug Review mission (4). The mission met with officials from GAIL, New Delhi,
Bijaipur, and Khera, to discuss project implementation matters and the status of compliance with the loan covenants. The mission visited sites at Bijaipur and Khera.
19
Appendix 3, page 1
ORIGINAL AND ACTUAL PROJECT SCOPE
ORIGINAL ACTUAL
(i) Supply and construction of a 505-kilometer (km) long, 28-inch diameter pipeline between Bijaipur and Dadri and spur lines to Bawana (75 km long, 18 inches in diameter) and Faridabad (10 km long, 12 inches in diameter).
(i) The actual length of the pipeline laid was 498 km. The reduction in length of the pipeline by 7 km was due to actual site conditions and realignment of the route at a few places.
The pipeline diameter was also changed from 28 inches to 36 inches during detailed engineering mainly to take care of gas supplies in future. The spur line to Bawana was not built.
In addition to the original plan, spur lines of 13 km long, 14 inches in diameter and 52 km long, 10 inches in diameter were laid between Uchangaon and Mathura and between Bhajera and Agra. These components were taken up in compliance with Supreme Court of India directives to supply natural gas instead of coal to industries near the Taj Mahal, Agra and to avoid pollution. GAIL financed this from its own resources.
(ii) Installation of new compressor
stations at Vaghodia and Khera comprising a total of about 132,000 horsepower (hp).
(ii) There were two changes:
(a) the total hp was reduced to 127,600 due to changes in pipeline parameters;
(b) the fuel gas for the compressor
station at Vaghodia was changed from rich gas to lean gas. This resulted in lower energy requirements for heating and helped increase LPG production.
(iii) Capacity enhancement and upgrading of the existing compressor stations comprising a total of about 77,400 hp at Hazira, Jhabua, and Vijaipur.
(iii) The capacity was reduced from 77,400 hp to 76,000 hp.
20
Appendix 3, page 2
ORIGINAL ACTUAL
(iv) Installation of cathodic protection, and extension of telecommunications and supervisory control and data acquisition (SCADA) facilities.
(iv) Scope of component is same as per original plan.
(v) Installation of new gas terminals at
Faridabad, Bawana, and Jagdishpur and upgrading of existing gas terminals at Hazira, Bijaipur, and Aonla.
(v) Scope of component is same as per
original plan. However, the gas terminal at Bawana was not built.
(vi) Installation of a new gas processing
plant of 12.7 MMSCMD capacity at Auraiya.
(vi) Scope of component is same as per
original plan.
(vii) Consulting services of engineering,
project implementation and construction supervision.
(vii) Completed.
(viii) Human resources development. (viii) 12 training programs completed out of 15.
PROJECT IMPLEMENTATION STRUCTURE
OIC = Officer-in-Charge Source: Gas Authority of India Limited.
Chairman and Managing Director
Director (Projects)
Executive Director(Pipelines)
General Manager(Pipelines)
Project Coordinator (Pipeline)
Spread-1 In-charge
Spread-2In-charge
Spread-3In-charge
Project Coordinator
(Compressors)
OIC Hazira
OIC Vaghodia
OIC Jhabua
Deputy General Manager
(Finance & Accounts)
Deputy General Manager
(Contracts & Purchases)
OIC Ujjain
22
Appendix 5
PROJECT COSTS (ORIGINAL VERSUS ACTUAL)
Appraisal Estimate Actual
Item Foreign Local Total Foreign Local Total A. Base Cost
Land acquisition and civil works
0.00 27.00 27.00 0.00 2.88 2.88
Line pipe and coating 129.00 0.00 129.00 129.47 15.93 145.40Line materials 5.90 0.40 6.30 0.00 6.43 6.43Cathodic protection 7.60 0.00 7.60 0.95 0.15 1.10Compressors 181.50 6.60 188.10 110.56 0.00 10.56Terminals 4.60 1.40 6.00 0.00 2.80 2.80Telecoms & SCADA 12.20 0.00 12.20 5.52 1.10 6.62Pressure upgradation 11.00 2.80 13.80 0.00 0.26 0.26Gas processing plant 86.30 21.90 108.20 50.68 43.09 93.77Pipeline construction 42.00 7.40 49.40 46.27 17.49 63.76Compressor and terminals erection
0.00
9.10
9.10
0.00
10.73
10.73
Institutional strengthening 1.70 0.30 2.00 0.63 0.00 0.63Consultancy services 2.90 26.30 29.20 0.00 13.71 13.71Taxes and duties 0.00 118.80 118.80 0.00 53.69 53.69Project management 1.50 13.10 14.60 0.00 9.50 9.50Port inland handling and insurance
0.00
32.50
32.50
0.00
0.69
0.69
Total Base Cost 486.20 267.60 753.80 344.08 178.45 522.53
B. Contingencies
Physical contingency 48.60 26.80 75.40 0.00 0.00 0.00Price contingency 40.90 36.90 77.80 0.00 0.00 0.00
Total Contingencies 89.50 63.70 153.20 0.00 0.00 0.00
C. Interest During Construction 70.30 30.70 101.00 19.20 18.71 37.91
Total 646.00 362.00 1,008.00 363.28 197.16 560.44
23
Appendix 6
ANNUAL AVERAGE EXCHANGE RATE FOR THE RUPEE AND DOLLAR
Fiscal Year Rs per $a
1993 30.65
1994 31.37
1995 31.40
1996 33.45
1997 35.50
1998 37.16
1999 42.07
2000 43.33
2001 45.61
a The annual average exchange rates are as per
Reserve Bank of India published rates.
PROJECT FINANCING PATTERN ($ million)
Appraisal Estimate Actual Costs
Sources Foreign currency
Local Currency
Total Cost
Percent
Foreign Currency
Local Currency
Total Cost
Percent
Asian Development Bank 260.00 0.00 260.00 25.79 157.47 0.00 157.47 28.10
Export Import Bank of Japan
170.00
0.00
170.00
16.86
63.83
0.00
63.83
11.39
Suppliers’ Credit
174.00
0.00
174.00
17.28
0.00
0.00
0.00
0.00
Oil Industry Development Board
0.00
144.00
144.00
14.28
0.00
0.00
0.00
0.00
Gas Authority of India Ltd.
42.00
218.00
260.00
25.79
141.98
197.16
339.14
60.51
Total
646.00
362.00
1,008.00
100.00
363.28
197.16
560.44
100.00
S. No. Activity3
- Pipeline Ordering
- Pipeline Manufacturing and Delivery
- Terminal Ordering
- Terminal Manufacturing and Delivery
- Compressor Station Ordering
- Compressor Station Manufacturing and Delivery
Survey/ROW Land Acquisition1
2 Civil Works
5 Procurement
3 Process Packages
4 Detailed Engineering
1994 1995 1996 1997 19984 1 2 3 4 1 2 3 4 1 2 3 4
1993
PROJECT IMPLEMENTATION SCHEDULE VERSUS ACTUAL
1 2 3 41 2 3 4
25 Appendix 8, page 1
S. No. Activity3
1994 1995 1996 1997 19984 1 2 3 4 1 2 3 4 1 2 3 4
1993
PROJECT IMPLEMENTATION SCHEDULE VERSUS ACTUAL
1 2 3 41 2 3 46 Construction
- Pipeline Tendering
- Pipeline Construction
- Terminal Tendering
- Terminal Construction
- Compressor Stations
- Hazira, Bijaipur, & Jhabua Tendering
- Hazira, Bijaipur, & Jhabua Construction
- Vaghodia & Khera Tendering
- Vaghodia & Khera Construction
7 Cathodic Protection
- Tendering
- Engineering and Procurement
26 Appendix 8, page 2
S. No. Activity3
1994 1995 1996 1997 19984 1 2 3 4 1 2 3 4 1 2 3 4
1993
PROJECT IMPLEMENTATION SCHEDULE VERSUS ACTUAL
1 2 3 41 2 3 4
- Construction
8 Telecommunications/SCADA
- Tendering
- Manufacture and Delivery
9 Gas Processing Plant
- Tendering and Construction
10 System Commissioning
ROW = right of way, SCADA = supervisor control and data acquisition, , S. No. = serial number
Appraisal Estimate
Actual
27 Appendix 8, page 3
LIST OF CONTRACT AWARDS ($ million)
GAIL Contract
Cate-gory
PCSS
Contract Description
Procu-rement Mode NIT Date
Date of Bid Opening
Submission of GAIL’s Technical
BER
Date of ADB
Approval
Submission of GAIL’s Price BER
Date of ADB
Approval
GAIL/ND/CP/2986/T-37/PUNJ/C-101
01 0001 Mainline Laying
ICB 16-May94 16-Aug-94 & 20-Jan-95
19-Dec-94 18-Jan-95 31-Jan-95 20-Feb-95
GAIL/ND/CP/2986/T-37/DOD/C-100
01
0002
Mainline Laying
ICB
16-May-94
16-Aug-94 & 20-Jan-95
19-Dec.94
18-Jan-95
31-Jan-95
20-Feb-95
GAIL/ND/CP/2986/T-29/95/C-5103
01 0003 Horizontal Directional Drilling
ICB 4-Jul-94 19-Sep-94 & 28-Jun-95
24-May-95 17-Jun-95 4-Aug-95 28-Sep-95
GAIL/ND/CP/2986-00-KA-PO-5021/501/562/C-5106
02 0004 Gas Turbine Compressors
ICB 2-Jun-94 18-Apr-94 & 31-Aug-95
15-Mar-95 29-May-95 29-Sep 95 26-Oct-95
GAIL/ND/CP/2986-00-KA-PO-5022/501/563/C-5113
02 0005 Gas Turbine Compressors
ICB 2-Jan-94 18-Apr-94 & 31-Aug-95
15-Mar-95 29-May-95 29-May-95 14-Nov-95
ICB/2986-5-LZ-PR-4011/033/C-6044
0006 Gas Engine Generators
ICB 30-Jan-95 04-May-95 & 29-Mar-95
16-Feb-96 10-Apr-96 8-May-96 18-Jun-96
GAI/ND/ACCTS/ADB/95
03 0007 Overseas Training in Gas Despatch
IS 20-Nov-95 27-Nov-95
3346/00-WA-TE 0063/7-129/94-95
01 0008 Laying of Line Bids & Cathodic Protection System
ICB 9-Jan-96 12-Jan-96
GAIL Contract
Cate-gory
PCSS
Contract Description
Procu-rement Mode NIT Date
Date of Bid Opening
Submission of GAIL’s Technical
BER
Date of ADB
Approval
Submission of GAIL’s Price BER
Date of ADB
Approval
03 0009 Training in International Financial Management
DP/ST 1 Jun-96 4-Jun-96
03 0010 Training in International Gas contracts
DP/ST 1-Jun-96 4-Jun-96
03 0011 Training for GAIL employees
DP/ST 10-Dec-96 30-Dec-96
GAIL Contract
Category
PCSS
Date of Contract Award
ADB Receipt of Signed Document Agency
ADB Disbursement
ADB Contract Amount
GAIL/ND/CP/2986/T-37/PUNJ/C-101
01 0001 10-Feb-95 5-Jul-95 Dodsal Ltd. 12.343 12.343
GAIL/ND/CP/2986/T-37/DOD/C-100
01 0002 10-Feb-95 16-May-95 Punj Lloyd Ltd., India 29.282 29.282
GAIL/ND/CP/2986/T-29/95/C-5103
01 0003 28-Sep-95 22-Jan-96 Cooper Rolls, USA 86.999 86.999
GAIL/ND/CP/2986-00-KA-PO-5021/501/562/C-5106
02 0004 26-Oct-95 28-Nov-95 Nuovo Pignone SPA, Italy 18.035 18.035
GAIL/ND/CP/2986-00-KA-PO-5022/501/563/C-5113
02 0005 30-Oct-95 28-Nov-95 HARCRO, USA 4.658 4.658
ICB/2986-5-LZ-PR-4011/033/C-6044
0006 13-May-96 19-Sep-96 PLE/Puhrgas AG, Germany 0.043 0.043
GAI/ND/ACCTS/ADB/95 03 0007 27-Nov-95 04-Mar-96 ACE Pipeline Contracts Pvt, India
0 0
3346/00-WA-TE 0063/7-129/94-95
01 0008 19-Feb-96 6-Mar-96 China National Overseas Engineering Corp., People’s Republic of China
0.090 0.090
03 0009 4-Jun-96 15-Jun-96 Sr. Catherine’s College, UK 0.036 0.036 03 0010 4-Jun-96 15-Jun-96 GRSE, India 5.524 5.524 03 0011 13-Dec-96 30-Dec-96 Various, UK 0.464 0.464 GAIL = Gas Authority of India Limited, PCSS = procurement contract summary sheet, BER = bid evaluation report, NIT = notice inviting tender, ICB = international competitive bidding, IS = international shopping, DP/ST = direct purchase/single tender, ADB = Asian Development Bank, GRSE = garden research ship building engineering
STATUS OF INTERNATIONAL TRAINING
Course Content Training Organization
Place of Training
Contract Value ($)
Participants (nos.)
Person-Months (nos.)
Level of the Participants
Gains from the Program
Gas Transmission Networks/Demand & Supply Management during 17–24 May 1996
Ruhar Gas Germany 32,300 03 0.80 DM/MGR To impart specific training to the engineers working at MCC to enable them to discharge their duties efficiently, under the changing scenario
Gas Despatch Training during 17–24 May 1996
Ruhar Gas
Germany
03
0.80
SDM/MGR
To impart specific training to the engineers working at MCC to enable them to discharge their duties efficiently, under the changing scenario
International Financial Management of Oil & Gas operation during 17–26 June 1996
IHRDC, Boston
Boston, USA
90,120.94 10 3.33 MGR/SM/DGM To equip the participants with aspects of financial management of oil and gas operations
International Gas contracts commercial factors & Negotiations during 17–28 June 1996
CPS, Oxford London, UK
35,794.6 05 1.83 DM/SDM/MGR/SM To equip the participants with the intricacies involved in import gas contracts, commercial factors and negotiations
Personnel Management in Public Sector during 29 September–31 October 1997
RIPA International
London, UK
62,300 04 0.40 MGR/SM To focus on improving effectiveness of personnel management in the public sector
Senior Management skills seminar: Achieving best practice during 21 Apr–2 May 1997 and 20 Oct–30 Oct 1997
RIPA International
London, UK
47,625 05 3.83 ED To review the principles of good management and share best practices
Course Content Training
OrganizationPlace of Training
Contract Value ($)
Participants (nos.)
Person-Months (nos.)
Level of the Participants
Gains from the Program
Project Management: during 21 April–16 May 1997
RIPA London, UK
77,850 06 5.20 DM/SDM/MGR To develop skills in the identification, appraisal, implementation, and evaluation of projects
Public Finance: Principles and changing practice during 11 August–5 September 1997
RIPA International
London, UK
51,900
04
3.47
DGM
To equip the participants with the skill required for best practice in financial management
Preventing fraud & corruption during 1 April–18 April 1997
RIPA International
London, UK
10,395 01 0.60 DM To help the participants become more aware of the incidence of fraud, corruption, and their causes
Management & information technology course during 21 April–2 May 1997
RIPA International
London, UK
27,800 04 1.60 DM To focus on information technology to serve the needs of the management and promote the achievement of the training objectives
Training at vendors works cooper Rools/Nuovo Pignone during 18 November 1996–04 April 1997 (5 batches)
Copper Rools Mt Vernon, USA
237,000 31 21.70 ENGR/DM/SDM/ MGR
To equip the engineers with the knowledge to operate and manage the machines
Nuovo Pignone
Italy 15 10.50 ENGR/DM/SDM
Cathodic Protection, design & coating inspection during 1–6 December 1996
Nace international
Houston, Texas, USA
7,825 01 0.20 SDM To stress the principles methodology of proper cathodic protection design. To focus on shop coating process for steel advance inspection techniques and introduce more sophisticated nondestructive test instruments
DGM = deputy general manager, DM = deputy manager, ED = executive director, ENGR = engineer, MCC = master control center, MGR = manager, SDM = senior deputy manager, SM = senior manager.
Appendix 11, page 1
STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS
Covenant Reference
in Loan Documents
Status of Compliance
1.
Prior to the implementation of the overseas training, the Borrower shall submit to the Asian Development Bank (ADB) a detailed training program for its personnel to be trained. The Borrower shall make suitable arrangements for all staff sent abroad for training to return and work for the Borrower for an appropriate period after their training is completed.
Loan Agreement (LA), Sch. 5, para. 3
Complied with.
2. Except as ADB shall otherwise agree, the Borrower shall, in order to ensure its sound financial operations: (i) do everything on its part and within its power to achieve financial results from its operations which are consistent with sound business and financial standards; (ii) provide ADB with its annual investment plan and its proposed mode of financing starting from FY1992/93 for the next five years; (iii) maintain at all times a debt service ratio of not less than 1.5:1; (iv) maintain at all times a debt-equity ratio of not more than 70:30; (v) produce for each of its fiscal year funds generated from internal sources (less the amount for debt service requirements and change in working capital) as follows: equivalent to not less than 20 percent for each fiscal year in the period from FY1994/95 to FY1996/97, and each fiscal year thereafter less than 30 percent, of the aggregate of the Borrower’s capital expenditures incurred or expected to be incurred for the concerned fiscal year.
LA, Sch. 5, para. 4
Complied with.
3.
Except as ADB may otherwise agree, the Borrower shall, prior to the public issuing or offering of its shares under the provisions of Section 2.07 of the Guarantee Agreement, (i) make necessary amendments to its Memorandum of Association to enable the Guarantor to divest a portion of its shares as required under Section 2.07 of the Guarantee Agreement; (ii) set up a shares department for the purpose of conducting transactions for the above-mentioned transfer of shares; (iii) undertake evaluation of its shares; (iv) complete the formalities for the abovementioned share issue or transfer; (v) obtain approval of the Securities and Exchanges Board of India for the prospects of the issue or offer of the shares of the Borrower owned by the Guarantor; and (vi) obtain a credit rating for its debt instruments and equity shares.
LA, Sch. 5, para. 5
Complied with.
33
Appendix 11, page 2
Covenant Reference in
Loan Documents
Status of Compliance
4.
The Borrower shall establish joint ventures for the purpose of carrying out the new projects in allied downstream fields not directly in relation to its gas processing and transmission business (downstream projects) and make capital investments for the downstream projects with funds raised from the capital markets. For this purpose, the Borrower shall amend its Memorandum of Association and Articles of Association to enable it to make decisions in investing in joint ventures and to set up an appropriate organizational structure of planning and execution of these downstream projects. The Borrower shall consult with ADB on all further downstream projects to be carried out by the Borrower.
LA, Sch. 5, para. 6
Complied with.
5. The Borrower shall (i) strengthen its management and increase the number of directors on its Board of Directors by inducting specialists from the fields related to the gas industry to face future challenges; and (ii) increase the representation of the nongovernment directors on the Board of Directors of the Borrower by FY1995/96.
LA, Sch. 5, para. 9
Complied with.
6
The Borrower shall in future enter into agreements with both its suppliers of gas and its downstream consumers, which may satisfactorily reflect contractual responsibilities relating to supply of gas, and take and pay obligations. Such agreements shall cover all aspects including among others, price, gas quality, terms and conditions of payment, validity period, penalties for defaults, and procedures for settling disputes. The Borrower shall provide ADB with samples of the above-mentioned agreements and take into account ADB’s comments thereon.
LA, Sch. 5, para. 10
Complied with. The gas contracts entered into with consumers for supply of gas through Hazira-Bijaipur-Jagdishpur gas supply system have been provided to ADB which contains provisions with regard to price, gas quality, terms and conditions of payment, validity period, penalty for defaults, and procedures for settling disputes. GAIL is not proposing any change in its standard terms and should there be any, it will be brought to the notice of ADB. GAIL has entered into a contract with a supplier of gas—a joint venture consortium of ONGC, Videocon International, and Command Petroleum for supply of natural gas, which, inter alia, provides for all clauses relevant from the point of view of commercial agreements. The purchase price of natural gas from these consortiums is set on the basis of a market-determined mechanism.
34
Appendix 11, page 3
Covenant Reference in
Loan Documents
Status of Compliance
7. The Borrower shall establish, six months prior to the commencement of the construction work under the Project, a committee composed of prominent citizens (citizens’ committees) to provide a third party monitoring program and provide funds for the operation. The Borrower shall annually provide ADB with a copy of the report of the concerned agencies and the citizens’ committee on project performance related to the mitigating measures outlined in the environment impact assessment.
LA, Sch. 5, para. 11(c).
Complied with.
In place of citizens’ committees, NEERI, Nagpur, India, conducted the review.
8. The Borrower shall furnish to ADB quarterly reports on the execution of the project and on the operation and management of the project facilities.
LA, Sec. 4.06(b)
Complied with.
9. The Borrower shall have its accounts and financial statements submitted to ADB in accordance with the agreed time schedule.
LA, Sec. 4.07 Complied with.
10. On the expiry of the current pricing policy, the Guarantor shall allow the gas marketing companies to determine the price of natural gas based on market conditions.
GA, Sec. 2.06 Not complied with. See gas pricing order dated 18 September 1997; effective 1 October,1997, the Government has linked prices of natural gas to international prices of fuel oil. The consumer price of gas at landfall points was fixed at 55 percent of international price of a basket of internationally traded fuel oils for FY1997/98 and increased to 65 percent and 75 percent in FY1998/99 and FY1999/2000 respectively. The September 1997 pricing order envisages 100 percent fuel oil parity with effect from 1 April 2002. Keeping in view the Government of India program and assurances given on the issue of dismantling of the administered pricing mechanism (APM), this is expected to be implemented as envisaged.
11. Except as the Guarantor and ADB may otherwise agree, the Guarantor shall, in a phased manner, reduce its equity ownership in the Borrower by not less than 30 percent through dilution or divestiture of its shareholding in the Borrower and complete such dilution or divestiture by the end of December 1996.
GA, Sec. 2.07 Not complied with. Government has taken measures to divest its holding in GAIL by 30 percent. The present (including public sector enterprise [PSE] holdings) divestment by Government in GAIL is 32.65 percent. However, out of this, the divestment in favor of PSEs is to
35
Appendix 11, page 4
Covenant Reference in
Loan Documents
Status of Compliance
the extent of 10.918 percent (ONGC - 4.83 percent, IOC - 4.83 percent and LIC - 1.26 percent) and the actual divestment to the private, corporate, and financial institutions is 21.73 percent.
12. The Guarantor shall ensure that, based on its gas utilization policy, its role shall be limited to providing broad guidelines on gas use, and that the gas companies shall have the freedom to determine their marketing strategies.
GA, Sec. 2.10 Not complied with. Under the New Exploration and Licensing Policy (NELP) issued by the Government, the gas companies are free to determine their marketing strategies including pricing. In addition, the Government is likely to establish a gas regulatory authority by 31 March 2002 for regulating transmission and distribution of gas and for fixing the prices for downstream products.
36
Appendix 12, page 1
POLICY ISSUES ON THE PRICING MECHANISM IN THE HYDROCARBON SECTOR A. Current Pricing Policy 1. In 1997, Government announced a phased withdrawal of the Administered Pricing Mechanism (APM). Full withdrawal was targeted with effect from 1 April 2002. From 1998 onward, domestic crude oil producers are no longer paid on a cost-plus basis. Producer prices, including those for natural gas, are slowly but steadily being raised to the level of global prices. The refinery gate prices for major products (gasoline, high speed diesel, kerosene, liquefied petroleum gas [LPG]) are still controlled, but through an adjusted import parity system. The prices for naphtha, furnace oil, low sulphur heavy stock (LSHS), bitumen, and paraffin wax were decontrolled in 1998. The price of aviation fuel was decontrolled in 2001. The Government still fixes consumer prices. The subsidies on LPG, diesel, and kerosene have not been reduced as promised, with the Government consistently postponing price increases. B. Present Mechanism of Gas Purchase Pricing from the Public Sector 2. The Government constituted an expert committee on natural gas pricing on 28 January 1995 to examine the changes required in the level and structure of prices of natural gas and to review the entire question of natural gas pricing. Largely based on recommendations of this committee, the APM was partly dismantled for calculation of consumer prices, and a pricing mechanism was put into effect from 1 October 1997. 3. From 1 October 1997 to 31 March 2000 the consumer price of gas at landfall points is linked to the price of a basket of LSHS fuel oils as shown in Table A12 below. A discount of Rs300/MMCM would also be available for existing consumers in the North-East on a case-by-case basis and the concessional price and the discount of Rs300/MMCM would be available on a case-by-case basis to the new units in the North-East states set up during 1997-2002 for a period of five years.
Table A12: Percentage of LSHS Fuel Oil Price
Fiscal Year General Price Concessional price for North East States
1998 55 30 1999 65 40 2000 75 45
4. Gas Authority of India Limited (GAIL) purchases natural gas from its suppliers, which include Oil and Natural Gas Corporation (ONGC) Oil India Limited (OIL), Ravva joint venture, Tapti joint venture, and Panna-Mukta joint venture.
37
Appendix 12, page 2 5. The 1997 gas pricing order provides that the consumer price for natural gas (the “consumer price”) is a floating price linked to an international basket of fuel oils (the “international reference price”) that is determined and fixed quarterly by GAIL as per the methodology laid down by MPNG. This consumer price was 55 percent, 65 percent, and 75 percent of the international reference price in the fiscal years ended 31 March 1998, 1999 and 2000, respectively. The consumer price is, however, subject to both a ceiling of Rs2,850 per MMCM and a floor of Rs2,150 per MMCM and is linked to a calorific content of 10,000 kilocalorie per kilogram (kcal/kg). For gas having a lower or higher calorific content, the consumer price will increase or decrease proportionately. 6. The above gas pricing order was effective for gas prices up to 31 March 2000. However, the Government is at present continuing with this mechanism only pending the issue of a new gas pricing order. C. Present Mechanism of Gas Purchase Pricing from Joint Ventures 7. GAIL is also purchasing gas from three joint ventures, i.e., Tapti, Panna Mukta, and Ravva. 8. In all cases, the gas prices are fixed based on the average of the daily mean values of the basket of international reference fuel oil prices. These prices are calculated on a quarterly basis and are subject to both ceiling and floor prices. 9. Under the New Exploration and Licensing Policy (NELP) issued by the Government, gas companies are free to determine their marketing strategies, including pricing. In addition, the Government is likely to bring in legislation by the end of December 2001 for the establishment of a gas regulatory authority for regulating the transmission and distribution of gas, including fixing the price of gas and downstream products. D. Future Scenario 10. In future, there will be fewer producer price controls, although the Government will still keep a close watch on the consumer prices of LPG, kerosene, and diesel. Subsidies on these products are likely to continue. Producer prices will thus primarily be determined by international trends. Consumer prices will therefore be determined by market forces, with some government intervention through subsidies. Inter-party transaction prices, like transmission charges, will be regulated by regulatory agencies. 11. Natural gas prices are likely to be linked to prices of a bigger basket of products, not just fuel oil. The Government will ask the regulatory agencies to prescribe limits on import costs of natural gas and LNG. 12. The September 1997 pricing order envisages 100 percent fuel oil parity by 2002. Keeping in view the Government program and assurances given on the issue of dismantling of the APM, this is expected to be implemented as envisaged.
38
Appendix 13
PROJECTED AND ACTUAL DISBURSEMENTS OF LOAN PROCEEDS ($ million)
Cumulative Disbursements Calendar Year
Projecteda Actual
1993 0.00 0.00
1994 18.10 0.00
1995 48.80 21.11
1996 99.90 50.78
1997 176.66 151.85
1998 186.66 157.47
a Projections are as made in the annual loan financial information system.
39
40Appendix 14, page 1
TA COMPLETION REPORT
Division: INRM
TA NO. & NAME: 2008-IND: Regulatory Framework for the Gas Industry in India
TA AMOUNT APPROVED: $600,000
SOURCE: THE BANK
REVISED AMOUNT:
EXECUTING AGENCY: Ministry of Petroleum & Natural Gas, Government of India
TA AMOUNT UNDISB: $59,927.50
TA AMOUNT UTILIZED: $540,072.50
DATE: APPROVAL 7.12.1993
SIGNING: 17.5.1994
FIELD: 8 May 1995
CLOSING: ORIGINAL:Feb. 1996 ACTUAL: Nov. 1997
TA Description
The efficient delivery of energy supplies is a key to economic growth. In the gas sector, particularly in gas transportation, the efficiency of energy delivery can be enhanced by having a greater involvement of the private sector. To promote private participation, a regulatory framework needs to be established to ensure economic efficiency in the utilization of resources and transparency of price and resource costs. The Bank, therefore, initiated this TA along with the Gas Rehabilitation and Expansion Project to the Gas Authority of India Limited (GAIL).
TA Objective and Scope
The objective of TA was to design an effective regulatory framework for the gas transportation industry. A detailed examination was to be undertaken for the existing and future network development, objectives of regulation, review of best international practices and recommendations on most appropriate institutional arrangements with an implementation plan. The scope included a review of the gas sector in the context of regulatory issues, a review of gas policy framework in developing and developed countries the establishment of regulatory objectives possible economic impact of regulation; and proposed institutional arrangements and determination of appropriate transition and implementation plan.
TA Inputs Evaluation
The TA was to be carried out by a consulting firm utilizing 18 person-months of international consultancy services and six person-months of local consultants. The foreign consultants were to have expertise in deregulation and reform, development of regulatory structure, knowledge of gas industry and its key business, and technological trends. The local consultants were to have knowledge of existing regulatory and operational controls, ability to gather data on energy and gas activities, organizations and trends as well as ability to contribute to key financial and other analysis of sector performance and its impact on the regulatory process. A U.K. consulting firm along with their Indian associates were selected as the Consultants for the TA. In accordance with the terms of reference, the Consultants carried out their assignments and made recommendations for the regulatory framework. But the submission of their final report was delayed by about a half year mainly due to delays in the overall progress of the work by the Consultants and partly due to longer time taken by the government for review of the Consultants’ reports than expected.
41Appendix 14, page 2
TA Outputs Evaluation
The Consultants recommended the creation of a central Gas Regulatory Commission (GRC) to be set up for regulating inter-state transmission of gas and state level regulating bodies for local gas distribution. It was proposed that the government should not interfere in the work of a regulator except for policy formation, taxation, subsidy, and environmental issues of gas industry. They were to exercise these powers in consultation with the regulator. It was proposed that the Commission be a five-member body with a gas industry expert, and legal, financial, managerial and public affairs personnel as members. Transportation is recommended to be ‘unbundled’ service and transmission services on ‘contract carriage’ basis only. The regulator is to be authorized to approve contract terms for new facilities. For distribution systems the regulator should provide for exclusive franchise, cross-ownership between distribution, transmission and bulk supply. For technical regulation it was suggested that it should be under Oil Industry Safety Directorate (OISD) which should ensure compliance and enforcement apart from setting standards. It was also recommended that OISD appoint a monitoring and inspection contractor to ensure that the laid down standards are followed.
TA Overall Assessment and Rating
The TA has been generally successful in fulfilling the tasks set out and its recommendations have been discussed at a seminar held in July 1997 where major petroleum companies participated with government officials and experts concerned. The government decided to consider suitable legislation to implement recommendations. The Indian Law Institute is preparing draft legislation and expected to complete the draft by the first quarter 1999. The government however could have reduced the time taken for TA signing and review of the Consultants’ reports.
Major Lessons Learned
During TA implementation, the environment was considered suitable for the government to establish a central GRC along with the ongoing various reforms in the hydrocarbon sector. Because of the changes of the government since then and several government ministries and agencies involved, however, actual implementation of the recommendation has been delayed. It is expected that the GRC will be set up in late 1999. The demand for gas is dependent upon the price that each sector can afford to pay. One of the factors in the unrestrained supply situation would be telescopic transportation costs along the Hazira Bijapur Jagdishpur (HBJ) pipeline, rather than the current uniform tariff throughout the length of the 1,800 km pipeline.
Follow-up Actions and Recommendations
A model has been prepared for telescopic transmission tariffs along the HBJ pipeline. This needs to be implemented as soon as government price controls are lifted. It is necessary to monitor that the recommendations of the TA are implemented according to the plan presented. There should be support for the drafting of the necessary law, but it takes time for the government to draft the law. In this regard, the unutilized amount in the TA could be spent for engagement of local specialists to assist in the drafting of the proposed legislation and other regulatory matters. Once it was suggested to MPNG to utilize the undisbursed TA funds in using local law experts for the legislation, but it wished to use government’s budget for that purpose. Therefore the TA account was closed in July 1998 with an amount of unutilized funds of about $60,000 cancelled. There is also a need for follow-up of the transitional arrangements that are necessary to ensure success of the establishment of regulatory climate in India. It is also recommended to follow up detailed schedules of promulgation of the new law and establishment of the GRC.
Prepared by: C.S. Chung, INRM Designation: Senior Project Implementation Officer
BALANCE SHEETS
Item 31/Mar/94 31/Mar/95 31/Mar/96 31/Mar/97 31/Mar/97 31/Mar/98 31/Mar/99 31/Mar/00 31/Mar/01
Current Assets 13,385 16,036 14,237 13,964 17,450 27,423 38,036 35,562 47,084 Cash and Bank Balances 9,938 12,510 8,507 5,952 3,345 8,517 14,341 16,548 12,345 Account Receivables 2,283 2,001 3,223 3,105 3,558 3,371 5,449 6,646 11,930 Inventories 706 967 1,121 1,249 1,853 2,234 3,526 3,266 3,876 Other Current Assets 458 557 1,387 3,658 8,694 13,301 14,720 9,102 18,933
Fixed Assets 18,449 20,942 33,442 46,376 54,848 59,736 63,702 71,013 74,691 Property, Pipeline and 25,828 27,173 28,713 39,273 51,827 77,688 85,224 100,379 111,610 Equipment(Accumulated 11,736 14,039 16,123 18,439 20,950 24,765 29,676 35,689 41,930 Depreciation)Net Fixed Assets 14,092 13,134 12,590 20,833 30,876 52,923 55,547 64,690 69,680 Capital Work in Progress 4,357 7,808 20,851 25,542 23,971 6,813 8,155 6,322 5,011
Unamortised Capital 78 37 25 12 9 0 4 3 - Expenditure
Total Assets 31,912 37,015 47,704 60,352 72,306 87,159 101,743 106,578 121,775
Current Liabilities 9,834 12,370 18,779 26,215 23,389 25,930 30,765 24,669 35,635 Account Payables 4,270 4,300 6,605 8,512 7,866 7,149 10,250 11,531 12,825 Pool Account 3,286 5,857 9,597 11,264 3,338 4,598 5,479 3,896 5,396 Others 2,278 2,212 2,577 6,439 12,185 14,182 15,036 9,241 17,414
Long-term Debt 8,661 8,059 8,021 8,345 14,779 19,775 23,725 27,109 27,763
Equity 13,417 16,586 20,904 25,792 34,138 41,454 47,252 54,800 58,377 Paid-in Capital 8,453 8,453 8,453 8,457 8,457 8,457 8,457 8,457 8,457 Retained Earnings 4,964 8,133 12,451 17,336 25,681 32,997 38,796 46,344 49,921
Total Liabilities 31,912 37,015 47,704 60,352 72,306 87,159 101,743 106,578 121,775 and Equity
Source: Gas Authority of India Limited
(Rs million)42 Appendix 15
Item 31/Mar/94 31/Mar/95 31/Mar/96 31/Mar/97 31/Mar/97 31/Mar/98 31/Mar/99 31/Mar/00 31/Mar/01
Sales VolumeNatural Gas (MMCM) 13,079 13,680 16,495 16,798 19,512 20,129 20,521 20,946 22,218 LPG (TONNE) 407,373 390,457 550,185 595,075 594,782 674,426 753,811 785,513 875,000 Petrochemicals (TONNE) - - - - 1,760 1,483 110,169 183,311 221,000 LPG Transmission (TONNE) - - - - - - - 100,000 1,530,000 Internal Consumption (MMSCM) 315 318 522 570 538 906 1,421 1,592
Sales Price (Rs)Natural Gas (per MCM) 2,219 2,300 2,342 2,360 2,597 2,746 3,129 3,396 4,352 LPG (per TONNE) 5,340 5,549 5,955 6,022 6,364 9,776 10,638 15,391 15,371 Petrochemicals (per TONNE) 42,163 41,727 44,252 47,025 46,425 LPG Transmission (per TONNE) 1,246 1,301 Internal Consumption (per MCM) 3,605 3,830 4,157 3,825 5,165 4,973 4,962 5,411
Net Revenues 33,388 36,360 46,036 49,922 63,937 68,929 85,629 101,911 137,310 Natural Gas 29,029 31,461 38,633 39,645 50,674 55,279 64,211 71,140 96,680 LPG 2,175 2,167 3,276 3,584 3,785 6,593 8,019 12,090 13,450 Petrochemicals - - - - 74 62 4,875 8,620 10,260 LPG Transmission 125 1,990 Internal Consumption 1,136 1,217 2,170 2,180 2,780 4,503 7,051 8,613 13,780 Others 1,048 1,515 1,957 4,513 6,624 2,492 1,473 1,323 1,150
Operating Expenses 29,254 31,898 39,946 40,890 49,391 55,660 73,657 84,417 121,510 Operation & Administration 26,963 29,585 37,864 38,546 46,906 52,265 68,766 78,411 114,710 Depreciation 2,292 2,313 2,082 2,344 2,486 3,395 4,891 6,006 6,800 Amortization
Operating Income 4,134 4,461 6,090 9,031 14,546 13,269 11,972 17,493 15,800
Interest Expenses 928 785 691 744 646 915 1,660 1,971 2,480
Net Income Before Tax 3,206 3,677 5,400 8,288 13,900 12,354 10,313 15,522 13,320 Income Tax 1 1 244 2,092 3,697 1,755 1,700 4,260 3,650 Net Income After Tax 3,205 3,676 5,155 6,195 10,203 10,599 8,613 11,262 9,670
Dividends 300 507 719 1,268 1,860 3,285 2,816 3,728 3,221
Source: Gas Authority of India Limited
INCOME STATEMENTS(Rs milion)
43 Appendix 16
Cash Flow Statements
Item 31/Mar/94 31/Mar/95 31/Mar/96 31/Mar/97 31/Mar/97 31/Mar/98 31/Mar/99 31/Mar/00 31/Mar/01
Sources
Internal Cash Generations 6,585 6,952 8,160 9,408 13,677 15,553 15,420 19,679 18,950 Net Income After Taxes 3,205 3,676 5,155 6,195 10,203 10,599 8,613 11,262 9,670 Depreciation & Amortisation 2,292 2,313 2,082 2,344 2,486 3,395 4,891 6,006 6,800 Interest Expenses 1,088 963 924 868 988 1,559 1,917 2,411 2,480
Share Capital - - 3 - - - - -
Borrowings 269 1,289 1,659 8,732 7,646 6,404 837 654 Foreign Currency Loans - 1,128 1,308 3,102 2,961 2,357 156 654 Domestic Borrowings - 3,900 2,500 3,010 475 - Suppliers'/Buyers' Credit - 269 375 558 975 832 - - - Year-end Evaluations (214) (207) 756 1,353 1,037 207 -
Total Sources 6,585 7,221 9,449 11,070 22,409 23,199 21,824 20,517 19,604
Applications
Capital Expenditures: 2,739 4,796 14,584 15,250 10,983 8,702 8,878 13,323 9,920 Acquisition of Capital Assets 1,092 1,344 1,540 10,560 12,554 25,861 7,536 15,156 11,231 Capital Work-in-Progress 1,647 3,451 13,043 4,691 (1,571) (17,159) 1,342 (1,833) (1,311)
Debt Services 2,205 2,180 2,289 2,216 3,287 4,209 4,378 5,549 2,480 Principal Repayment 1,117 1,217 1,366 1,347 2,299 2,650 2,461 3,137 Interest Expenses 1,088 963 924 868 988 1,559 1,917 2,411 2,480
Dividends 200 300 507 719 1,268 1,860 3,285 2,816 3,728
Increase/Decrease in Working Capital (2,350) (2,458) (4,204) (5,153) 8,917 2,261 (47) 1,416 4,598 Increase/Decrease in Other Assets (5) (169) 277 593 561 995 (494) (4,794) 3,081
Total Applications 2,789 4,649 13,453 13,624 25,016 18,028 16,000 18,309 23,807
Net Cash Flow 3,796 2,573 (4,004) (2,554) (2,607) 5,171 5,824 2,207 (4,203)
Cash Balance- At the Beginning 6,142 9,938 12,510 8,507 5,952 3,345 8,517 14,341 16,548 - At the End 9,938 12,510 8,507 5,952 3,345 8,517 14,341 16,548 12,345
Source: Gas Authority of India Limited
(Rs million) 44 Appendix 17
Item 31/Mar/94 31/Mar/95 31/Mar/96 31/Mar/97 31/Mar/97 31/Mar/98 31/Mar/99 31/Mar/00 31/Mar/01
Operating Margin Ratio 12.38 12.27 13.23 18.09 22.75 19.25 13.98 17.17 11.51Profit Margin Ratio 12.38 12.27 12.70 13.90 16.97 16.70 12.00 12.98 8.85Return on Net Fixed Assets 29.30 34.00 48.40 43.40 47.10 25.10 21.60 27.00 22.70Return on Equity 23.90 22.20 24.70 24.00 29.90 25.60 18.20 20.60 16.60Interest Coverage (Times) 4.46 5.69 8.82 12.15 22.53 14.50 7.21 8.87 6.37Current Ratio (Times) 1.36 1.30 0.76 0.53 0.75 1.06 1.24 1.44 1.32Debt/Equity Ratio 39.20 32.70 27.70 24.40 30.20 32.30 33.40 33.10 32.20Debt-Services Ratio (Times) 3.00 3.20 3.60 4.20 4.20 3.70 3.50 3.50 7.60Self-Financing Ratio 42.00 69.00 179.00 162.00 80.00 56.00 58.00 68.00 52.00Operating Cash/Current Liabilities 67.00 56.00 43.00 36.00 58.00 60.00 50.00 80.00 53.00
Source: Gas Authority of India Limited
RATIO ANALYSIS(in percentage)
45 Appendix 18
Appendix 19, page 1
ASSUMPTIONS FOR THE FINANCIAL AND ECONOMIC REEVALUATION OF THE PROJECT
A. Financial Reevaluation 1. The financial reevaluation of the Project is carried out on an incremental basis. 2. The Project's economic life is assumed to be 16 years, with no salvage value. 3. All prices and costs are expressed in constant 2001 values. 4. The capital cost includes the costs for construction of the pipeline, and modification of existing compressor stations (Hazira, Jhabua, and Bijaipur) as well as the addition of new compressor stations at Khera and Vaghodia, and installation of gas processing facilities at Pata. 5. Incremental Gas. The incremental gas supply amounted to 8.75 million standard cubic meter per day (MMSCMD) in FY1999, increasing to 12.67 MMSCMD in FY2000 and further to 14.49 MMSCMD in FY2001. The full design capacity of the expanded pipeline amounting to 15.2 MMSCMD will be realized only from FY2002. Out of the incremental gas, ethane/propane production is estimated at 0.24 million tons in FY2000, 0.3 million tons in FY2001, and 0.41 million tons thereafter. 6. Sale Prices. At present, gas sale prices in India are based on a formula linking the consumer price to 75 percent of the international price of a basket of fuel oils. The Government intends to dismantle the Administered Pricing Mechanism (APM) in place for gas from April 2002. The present reevaluation has been carried out for both scenarios—with APM and without APM. As ethane/propane is not a traded commodity in India, a notional price of Rs8,517 per ton has been assumed in the with APM scenario. In the without APM scenario, the price for this product is assumed to be Rs11,250 per ton. This product is consumed by Gas Authority of India Limited (GAIL) internally for production of other petrochemicals. 7. Financial Internal Rate of Return (FIRR). Considering the current APM prices, the posttax FIRR works out to 18.8 percent. However, if it is assumed that the price of gas will be linked to market forces in April 2002 after the Government dismantles the APM, the posttax FIRR will work out to 13.31 percent, assuming a fuel oil price of $137.5 per ton (landed cost) and an exchange rate of Rs48 per dollar. 8. The effective corporate tax rate for GAIL has been assumed to be 30 percent. The posttax weighted average cost of capital for GAIL is estimated at 12.9 percent, based on a debt-equity ratio of 33 percent. B. Economic Reevaluation 9. The economic reevaluation of the Project is on an incremental basis, considering actual sales details till FY2001 and projected sales thereafter, based on an economic life of 16 years and a salvage value of 5 percent.
46
Appendix 19, page 2 10. The economic capital cost of the Project is based on the financial capital costs and excludes duties, taxes, and other financial charges. The local currency costs are adjusted by using a standard conversion factor of 0.8. The capital costs are in 2001 constant prices. The capital cost includes, in addition to the costs for expansion of the pipeline, the cost of the Liquified Petroleum Gas (LPG) extraction facility set up at Pata. 11. The known gas resources of India are expected to last for more than 40 years. Thereafter, domestic coal will be the replacement fuel for most uses. The depletion premium calculated based on gas being replaced by coal is insignificant and is ignored. 12. Gas Valuation. Unlike oil and other petroleum products, natural gas is not internationally traded, and hence an economic reference price is difficult to establish. For the present reevaluation, it has been assumed that natural gas purchases displace fuel oil, the lowest valued alternative. Natural gas is a preferred feedstock/fuel for the fertilizer and many other industries, as its use leads to significant reduction in capital and operating costs. In addition, there are environmental benefits due to the improvement of air quality and reduction in effluents, which makes its use desirable, particularly in the northern states including Delhi. If factored into the price, such benefits would translate into a much higher netback price than one evaluated purely based on the thermal equivalent prices for fuel oil and naphtha assumed in the current reevaluation. For the present reevaluation, the cost, insurance and freight (CIF) price of fuel oil is estimated at $110 per ton, naphtha at $235 per ton, and LPG at $225 per ton. The output gas has been assumed to replace naphtha to the extent of 70 percent and fuel oil to the extent of 30 percent.
47
Sales Revenue Incremental Operating costIncremental Sales Price Total Variable Fixed Incremental Change in After Tax Before Tax
Fiscal Sales of Gas Sales Processing Revenue Cost Cost Tax Working CapitalYear MMCM (Rs/MMCM) Capital Investment
1994 - - - - - - - - - (127) (127) (127) 1995 - - - - - - - - - (363) (363) (363) 1996 - - - - - - - - - (6,945) (6,945) (6,945) 1997 - - - - - - - - - (6,519) (6,519) (6,519) 1998 - - - - - - - - - (7,049) (7,049) (7,049) 1999 3,194 3,627 13,099 - 13,099 8,409 535 - 490 (1,201) 3,443 3,443 2000 4,260 4,045 18,868 2,057 20,925 14,329 885 66 1,930 (74) 7,502 7,568 2001 4,564 4,266 19,472 2,519 21,991 16,286 1,056 70 250 (196) 4,634 4,704 2002 4,825 4,266 20,585 3,532 24,117 17,631 1,056 404 670 - 5,696 6,100 2003 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2004 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2005 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2006 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2007 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2008 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2009 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2010 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2011 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2012 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2013 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430 2014 4,825 4,266 20,585 3,532 24,117 17,631 1,056 447 - - 4,983 5,430
FIRR 18.80% After Tax
FIRR 19.74% Before Tax
Note: Values are in constant 2001 prices.Source: Gas Authority of India Limited.APM = Administered Pricing Mechanism.
Revenue from Gas
FINANCIAL INTERNAL RATE OF RETURN
(million Rupees)Table A20.1: Financial Internal Rate of Return with APM
Net Cash Flow
48 Appendix 20, page 1
Sales Revenue Incremental Operating costIncremental Sales Price Total Variable Fixed Incremental Change in After Tax Before Tax
Fiscal Sales of Gas Sales Processing Revenue Cost Cost Tax Working CapitalYear MMCM (Rs/MMCM) Capital Investment
1994 - - - - - - - - - (127) (127) (127) 1995 - - - - - - - - - (363) (363) (363) 1996 - - - - - - - - - (6,945) (6,945) (6,945) 1997 - - - - - - - - - (6,519) (6,519) (6,519) 1998 - - - - - - - - - (7,049) (7,049) (7,049) 1999 3,194 3,627 13,099 - 13,099 8,409 535 - 490 (1,201) 3,443 3,443 2000 4,260 4,045 18,868 2,057 20,925 14,329 885 66 1,930 (74) 7,502 7,568 2001 4,564 4,266 19,472 2,519 21,991 16,286 1,056 70 250 (196) 4,634 4,704 2002 4,825 4,266 20,585 3,532 24,117 17,631 1,056 404 670 - 5,696 6,100 2003 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2004 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2005 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2006 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2007 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2008 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2009 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2010 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2011 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2012 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2013 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537 2014 4,825 4,266 42,549 4,665 47,214 43,622 1,056 115 - - 2,422 2,537
FIRR 13.31% AFTER TAX
FIRR 13.90% BEFORE TAX
Note: Values are in constant 2001 prices.Source: Gas Authority of India Limited.APM = Administered Pricing Mechanism, proposed to be dismantled with effect from 1 April 2002.
Revenue from GasNet Cash Flow
FINANCIAL INTERNAL RATE OF RETURN Table A20.2: Financial Internal Rate of Return without APM
(million Rupees)
49 Appendix 20, page 2
50
Appendix 21
Fiscal Capital Operating Cost of Total Annual Sales Net CashYear Cost Cost Gas Cost Revenue Flow
1994 106.7 106.7 - (106.7) 1995 350.9 350.9 - (350.9) 1996 6,650.2 6,650.2 - (6,650.2) 1997 5,927.0 5,927.0 - (5,927.0) 1998 6,605.8 6,605.8 - (6,605.8) 1999 2,118.6 472.5 14,890.0 17,481.1 23,823.3 6,342.2 2000 1,685.6 1,676.8 21,562.0 24,924.4 33,367.4 8,443.0 2001 416.0 2,622.3 24,657.0 27,695.3 36,153.1 8,457.8 2002 58.9 3,808.5 25,865.0 29,732.4 38,917.5 9,185.1 2003 3,832.5 25,865.0 29,697.5 38,918.2 9,220.7 2004 3,877.5 25,865.0 29,742.5 38,936.4 9,193.9 2005 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2006 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2007 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2008 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2009 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2010 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2011 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2012 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2013 3,937.5 25,865.0 29,802.5 38,956.9 9,154.4 2014 (1,196.0) 3,937.5 25,865.0 28,606.5 38,956.9 10,350.4
Internal Rate of Return 30.50%
Note: Values are in constant 2001 prices.
ECONOMIC INTERNAL RATE OF RETURN(million Rupees)
51
Appendix 22
MONTHLY AVERAGE GAS INTAKE (million standard cubic meter per day)
Month 1998 1999 2000 2001
January 25.01 30.73 31.67 32.13
February 25.85 26.77 33.80 32.96
March 25.71 20.22 33.09 33.52
April 25.52 20.79 30.39 31.92
May 26.66 30.12 32.15 33.30
June 29.05 30.60 33.29 33.52
July 29.41 30.76 33.31 33.50
August 28.76 31.26 33.42 33.49
September 24.81 32.52 33.64 33.36
October 26.68 31.53 32.80
November 27.94 32.30 33.28
December 29.79 32.66 32.82
Source: Gas Authority of India Limited.