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2010

Jagdishpur-Haldia Pipeline:Demand Estimation & TariffDeterminationGAIL (INDIA) Limited

Ankit SethiUniversity of Petroleum and Energy Studies, Dehradun

2010

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AGDISHPUR-HALDIA DEMAND ESTIMATION & TARIFF 201

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Project Report Approval Sheet

This is to certify that the project mentioned below, has been completed by Mr.

Ankit Sethi under my guidance during the period w.e.f 1stJune 2010 to 31

stJuly

2010.

1. Jagdishpur-Haldia Pipeline: Demand estimation & Tariff Determination

2. Proposal for Bhatinda-Srinagar Pipeline

He has submitted this project report towards partial fulfillment of curriculum ofMasters Degree of

Business Administration in Oil and Gas, University of Petroleum and Energy Studies,Dehradun.

To my best knowledge, the matter presented in the project has not been

submitted anywhere else. The same is hereby approved.

Rajesh Bagaria

Senior Manager

Gas Authority of India Limited (GAIL), Delhi

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Acknowledgement

It gives me immense pleasure to be attached with Gas Authority of India Limited

(GAIL), Delhi which has provided me a very unmatched training in my summer

internship. I place special thanks to the Deputy General Manager Mr. G. S.

Chouhan for his continuous support.

I gratefully acknowledge my profound indebtedness towards my esteemed mentor

Mr. Rajesh Bagaria Senior Manager, GAIL (India) Ltd for his valuable

guidance, excellent supervision and constant encouragement during the entirecourse of work, without which the present work would have not been possible.

A special thanks to Mr. Vivek. R. S. Neelam Senior Officer (pricing) and Mr.

V. K. Duggal, Deputy General Manager ,Business Development BPCL

Delhi for extending their support in the successful completion of my project.

I also express sincere gratitude to the faculties, UPES Dehradun for providing

pivotal study material. Last but not least, I would also like to thank the entire

team of GAIL, for their constant support.

.

Thanking you

Ankit Sethi

University of Petroleum & Energy Studies

Date: Dehradun, Uttrakhand

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CONTENTS

Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . 6Executive Summary . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . 7

1. Overview of Indian Economy . . . . . . . . . . .. . . . . . . . . .9

1. 1. Demand-Supply Outlook . . . .. . . . . . . . .10

1. 2. Company Profile . . . . . . . . . . .. . . . . . . . 12

2. Prioritization of Natural Gas . . . . . . . . . . . .

. . . . . . . . . . .143. The Proposal . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 17

3. 1. Jagdishpur-Haldia Pipeline . .. . . . . . . . 17

4. Jagdishpur-Haldia Pipeline. . . . . . . . . . . . . .. . . . . . . . . . .18

4. 1. Basic Parameter. . . . . . . . . . .. . . . . . . . . 19

4. 2. Gas Supply Scenario . . . . . . . .. . . . . . . . 20

4.3. Project Schedule & CostEstimate . . . . . 22

5. Gas Throughput for Transmission Tariffs-JHPL. . . . . . . . 23

5. 1. Optimal Pipe Size . . . . . . . . . .. . . . . . . . 23

5. 2. Proposed Pipeline System . . .. . . . . . . . 25

6. Project Cost. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 28

7. Project Financials . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 34

7. 1. Total Revenue. . . . . . . . . . . . .. . . . . . . .34

7.2. Capital Expenditure . . . . . . . . .. . . . . . . . 34

7. 3. Operating Expenditure . . . . .. . . . . . . . . 35

7. 4. Methodology for Tariffcalculation . . . 36

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7. 5. Transportation Tariff. . . . . . .. . . . . . . . 37

8. Means of Finance. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .40

9. Basic Assumption. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .42

10. Project Profitability. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . 4411. SWOT Analysis. . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . 51

12. Risk Analysis & Mitigation Strategies. . . . . .. . . . . . . . . . 52

13. Sensitivity Analysis. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 53

14. Conclusion and Recommendations. . . . . . . .. . . . . . . . . 54

ANNEXURE-1: Envisaged MarketANNEXURE-2: Capacity Build Upin Phases

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Facts &Figures

Table 1: Gas Scenario: Present & Future

Table 2: Demand

Outlook Table 3: Gas Supply

sources Table 4: Demand supply

gap Table 5: Basic

Parameters Table 6: Gas Supply

Scenario

Table 7: Projected demand year wise

Table 8: Project Schedule and CostEstimate

Table 9: Proposed Pipeline System

Table 10: Capital Outflow

Table 11: Total Revenues

Table 12: Transportation

TariffTable 13: Means of

Finance Table 14: Free cash Flow

Table 15: Basic

Assumptions Table 16: Profitability

Analysis Table 17: Sensitivity

Analysis

Figure 1: Prioritization of Natural Gas

Figure 2: JHPL Map

Figure 3: Profit after Tax

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION 2010Glossary ofTerms

Abbreviation Full Form

CGD City Gas Distribution

CNG Compressed Natural Gas

CGS City Gas Station

CV Calorific Value

Capex Capital Expenditure

DSCR Debt-Service Coverage Ratio

EBIT Earnings Before Income and Tax

FCI Fertilizer Corporation of India

HOA Heads of Agreement

HSD High Speed Diesel

IDC Interest During Construction

IRR Internal Rate of Return

JHPL Jagdishpur-Haldia Pipeline

LPG Liquefied Petroleum Gas

LNG Liquefied Natural Gas

MS Motor Spirit

MTPA Metric Tons Per Annum

MMTPA Million Metric Tons Per Annum

MMSCMD Million Metric Standard Cubic Meters Per

MoP&NG Ministry of Petroleum and Natural Gas

MMBtu Million British Thermal Unit

Opex Operating Expenditure

PAT Profit After Tax

PBT Profit Before Tax

P&L Acc. Profit and Loss Account

PNGRB Petroleum and Natural Gas Regulatory

ROW Right of Way

SAIL Steel Authority of India Limited

WBPDC West Bengal Power Development

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Source Available Gas Volume(MMS

CMD2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

KG Basin 5.1 7.1 7.8 8.6 9.0Mahanadi 0 5 10 20 20Gas

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Jagdishpur-Haldia Pipeline

GAIL (India) Limited, is India's flagship Natural Gas

company, integrating all aspects of the Natural Gas value

chain (including Exploration & Production, Processing,

Transmission, Distribution and Marketing) and its relatedservices.

Jagdishpur-Haldia pipeline (JHPL) project has been

conceptualized to cater to the gas demand of consumers in

the states of eastern Uttar Pradesh, Bihar, Jharkhand and

West Bengal. The gas source for the pipeline has been

considered KG Basin and ONGC Mahanadi Gas. This pipeline

shall carry gas from ONGC Mahanadi and KG Basin through

Reliances Kakinada- Basudevpur-Howrah pipeline. The

pipeline will start from Haldia and terminate at Phulpur.

Gas Supply Scenario

Gas source envisaged & projected available gas volume on the Jagdishpur-

Haldia pipeline system is given below:

Executive Summary

Total 5.1 12.1 17.8 28.6 29

Projected gas demand year wise by Marketing is tabulated below:

HoA Gas InMMSCMD

2012-2013 2013- 2014- 2015- 2016- 2017-2018Total 8.15 15.78 18.18 20.58 22.99 24.00

Pipeline system has been designed for meeting the gas demand in

various sectors. Details are given below:

a) Fertilizers (HFC Durgapur, FCI Sindri, HFC Barauni,

FCI Gorakhpur & DIL Kanpur)

b) Power (CESC Haldia, DPL Durgapur, WBPDC Bandel, WBPDC Katwa,WBPDC Sagardighi & Barh Power Plant)

c) Industries (SAIL Durgapur, SAIL Bokaro & Petrochemical Plant

Barauni).

d) City Gas (Kolkata, Jamshedpur, Ranchi, Patna,

Chapra, Siwan, Gopalganj, Betiah Varanasi &

Allahabad).

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Gas Source for Jagdishpur-Haldia Pipeline would be available

from KG Basin by Reliance, Mahanadi Basin by ONGC and KG

Basin by Gujarat state

Petroleum Corporation.

As per the authorization, the capacity of this pipeline is 16

MMSCMD (which is inclusive of 4 MMSCMD for common

carrier), however based on

prevailing gas demand and gas availability scenario, the

design capacity for JHPL in first phase will be 16 MMSCMD

which will be augmented in second phase from 16 to 32

MMSCMD.

As per the technical team the diameter of the pipeline isrecommended at

36 for thisproject.

ExecutiveSummary

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1. Overview of IndianEconomy

Most agencies have projected Indias demand of natural gas to grow at a rate

higher than other fuels such as oil and coal. The future demand for natural

gas in India will be driven mainly by two factors:

The need for new sources of energy to fuel economic growth

and improve living conditions; and

The desire to reduce the consumption of coal and liquid fuels and

thus the level of pollution.

These drivers are, however, subject to a number of constraints indetermining the actual

level of gas demand: the price of gas and its competitiveness vis--vis

other fuels and the rate at which the downstream market is

developed in both power and non-power sectors.

Many uncertainties will affect the future gas demand level, particularlywith respect to

the cost of supply and Indias ability to create an integrated national

transportation and distribution network. Competitiveness of natural gas

against coal in power generation will also be a key determinant of gas-

demand growth.

Indias demand projections have been made at different points in time

using different

assumptions and for different periods. Summarizes the projections

made by different agencies for the same milestone years over

respective forecast period by adopting the process of interpolation andextrapolation.

Gas Scenario: Present & Future

( i n b i ll i on s o f c ub i c f e e t)

3000

2500

2000

1500

1000

500

0

2010

2030Source: Infraline.Com

Domestic Production

Net Imports

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2009-10

2010-11

2011-12

ONGC + OIL (A) 55.69 54.67 51.08

Pvt./ JVs (As Per DGH) (B) 60.28 58.42 57.22

Projected Domestic Supply 115.97 113.09 108.30

Additional Gas Anticipated 74 84 94

Total Projected SupplyScenario 1 (A+B)

115.97 113.09 108.30

1. 1. Demand Outlook

Sector 2009-2010 2010-2011 2011-2012

Power 100 11 12Fertilizer 52 79 79

City gas 14 15 16Industrial 17 18 20Petrochemicals/ refineries/ others/internal

29 31 33

Sponge iron/ steel 7 7 8Total 219 26 28

1. 1. 1. Gas Supply Sources

Sources

Total Projected SupplyScenario 2 (A+B+C)

189.97 197.09 202.30

The estimated gap between domestic gas production and supply is mainly on

account of internal use by the producers themselves, technical flaring and gas

shrinkages.

Looking at the overall demand projections and even the most optimistic scenario of

expected domestic supplies, it is very clear that there would be a supply

shortfall. Therefore, there is a need to step up imports in the coming 5 years.

There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej. Thisis being supported by the commencement of LNG supply from the Hazira Terminal

of Shell which is, however, yet to stabilize. To augment the shortfall, the country

is already pursuing imports, both through the LNG route and the transnational

pipeline route.

Source:Infrraline.com

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09-10 10-11 11-12

Dahej 7.5 10.00 10.00

Hazira 2.50 2.50 2.50

Dabhol 5.00 5.00 5.00

Kochi - 2.50 5.00

Mangalore - - 1.25

Total LNG Supply (MMTPA) 15.00 20.00 23.75

09-10 10-11 11-12

Projected DomesticSupply (ONGC

115.97 113.09 108.30

Additional anticipated 74 84 94

LNG (C) 52.50 70.00 83.12

LNG/Supplies through Transnational Pipelines

LNG Supply Source

Total LNG Supply (MMSCMD) 52.50 70.00 83.12

1. 1. 2. Demand Supply Gap for Natural Gas

Gap would increase steadily to 91.13 MMSCMD by 2011-12 in Scenario

I, whereas under Scenario II, the gap would by and large be bridged from

2009-10 onwards and there is expected to be a demandsupply balance

during the last 3 years of the XI Plan period. The overall demandsupply

balance is presented below:

Supply

Total Supply (A+C) 168.47 183.09 191.42

Total Supply (A+B+C) 242.47 267.09 285.42

Demand (MMSCMD) 225.52 262.07 279.43

Demand Supply Gap I 57.05 78.97 88.03

Demand Supply Gap II -16.95 -5.03 -5.97

Source: Infraline.com

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1. 2. Company Profile

GAIL (India) Limited, is India's flagship Natural Gas company, integrating allaspects of the Natural Gas value chain (including Exploration & Production,Processing, Transmission, Distribution and Marketing) and its related services. In arapidly changing scenario, we are spearheading the move to a new era of clean

fuel industrialization, creating a quadrilateral of green energy corridors thatconnect major consumption centers in India with major gas fields, LNG terminalsand other cross border gas sourcing points. GAIL is also expanding its business tobecome a player in the International Market.

Incorporated 16th

August ,1984

Turnover (2009-10) Rs. 24,996 Crore

Net Profit (2009-10) Rs. 3,140 Crore

Employees 3,480

Market Shares 78% Market Share in Natural Gas Transmission70% Market share in Natural Gas Marketing

Today, GAIL's Business Portfolio includes:

7,700 km of Natural Gas high pressure trunk pipeline with a capacity tocarry 157 MMSCMD of natural gas across the country7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other liquidhydrocarbonsNorth India's only gas based integrated Petrochemical complex at Patawith a capacity of producing 4,10,000 TPA of Polymers

1,922 km of LPG Transmission pipeline network with a capacity to transport 3.8MMTPA of LPG27 oil and gas Exploration blocks and 3 Coal Bed Methane Blocks13,000 km of OFC network offering highly dependable bandwidth for telecomservice providers Joint venture companies in Delhi, Mumbai, Hyderabad,Kanpur, Agra, Lucknow, Bhopal, Agartala and Pune, for supplying PipedNatural Gas (PNG) to households and commercial users, and CompressedNatural Gas (CNG) to the transport sectorParticipating stake in the Dahej LNG Terminal and the upcoming Kochi LNGTerminal in Kerala GAIL has been entrusted with the responsibility of revivingthe LNG terminal at Dabhol as well as sourcing LNG GAIL Gas Limited, a wholly owned subsidiary of GAIL (India) Limited, was

incorporated on May27, 2008 for the smooth implementation of City Gas Distribution (CGD)projects. GAIL GasLimited is a limited company under the Companies Act, 1956.

Established presence in the CNG and City Gas sectors in Egypt throughequity participation in three Egyptian companies: Fayum Gas Company SAE,Shell CNG SAE and National Gas Company SAE.

Stake in China Gas Holding to explore opportunities in the CNG sector inmainland China

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Leaders in Gas

Since inception, GAIL has been the undisputed leader in the marketing,transmission and distribution of Natural Gas in India. As India's leadingNatural Gas Major, it has been instrumental in the development of theNatural Gas market in the country. Today, Natural Gas accounts for about8% of the total primary commercial energy consumption in India.Consumption has grown significantly during the past two decades. In fact,in the 1990s, thedemand for Natural Gas far outstripped its domestic production, leading togas import initiatives and the subsequent development of LNG importprojects at suitable coastal locations inWestern and Southern India.

Currently, GAIL sells over 70% (excluding internal usage) of Natural Gas in thecountry. Of this,

41% is to the power sector and 30% to the fertilizer sector.* Totally, theysupply 60 MMSCMD of Natural Gas from domestic sources to customersacross India basis long-term Gas Sales Agreements. These customers rangefrom the smallest of companies to mega power and fertilizer plants. Theyhave adopted a Gas Management System to handle multiple sources ofsupply and delivery of gas in a co-mingled form and provide a seamlessinterface between shippers, customers, transporters and suppliers. They arepresent in 11 states, i.e., Gujarat, Rajasthan, Madhya Pradesh, Delhi,Haryana, Uttar Pradesh, Maharashtra, Tamil Nadu, Andhra Pradesh, Assam,and Tripura.

Actively pursuing opportunities in inter-regional gas trade both in the form ofPipeline gas and

LNG.

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2. PRIORITIZATION OF

NATURAL GAS FERTILIZER

Food security as urea consist of 60% of fertilizer inputs and India must

improve the yield per acre as there is no further scope left forincreasing the crop acreage . Natural gas is considerably cheaper than

naphtha and domestic gas should be first used in existing fertilizer

units, thereafter feed the requirement of expansion and new capacity addition.

400

200

0

Projected Gas Demand for FertilizerSector

2007-08 2008-09 2009-10 2010-11 2011-12

Urea Production Capacity (Lakh tones) Gas Demand (MMSCMD)

POWER

Most versatile form of energy: best in terms of application, pollution free

and impact the population at large. Power for all goals is to be achievedand so in the additional power requirement to be created to sustain GDP

growth. Domestic coal, although available is large reserves, but cannot

meet this goal due to low calorific value, ash disposal, environmental

infrastructural constraints, land requirement etc. Imported coal is

constrained by limited port infrastructure and limitations of the existing

cross country transportation by rail (road is not feasible) .Nuclear power

has long gestation and fuel linkage issue. Hydel again has serious

environment, silting, social cost, seismic and long gestation period issue.

150

Gas Demand Projections inpower sector(MMSCM

D)

100

50 Gas Demand

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0

2007-08 2008-09 2009-10 2010-11 2011-12

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Renewable do hold the promise but is not economic and base load power

requirement can hardly be met. Petroleum products (FO & Naphtha) can be

an important source for generating power, yet the economic and high crude

oil prices volatilities adversely affected the power economic. So, domestic

natural gas should next best be used for creating of CCGT plant to meet the

additional power requirements. Further, the CCGT economic compares mostfavorable

options with power generation based on other fossil fuels.

INDUSTRIES

Purely on economic consideration, next best use of domestic gas is in

industries refineries, steel plant petrochemical units, small medium

enterprises etc as the alternative fuel ( FO , HSD , LDO & LSHS ) are

expensive and are not environmentally friendly . Further, coal meeting the

fuel

requirement of steel plant has serious environmental issues.

Gas Demand inPetrochemicals/Refineries and InternalConsumption

GasDemand

23.71 25.37 27.14 29.0431.07

33.25

2006-07 2007-08 2008-09 2009-20102010-11 2011-12

Gas Demand in sponge iron/steel sector

GasDemand

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6 6.426.87

7.35

7.86

2007-08 2008-09 2009-10 2010-11 2011-12

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CITY GAS DISTRIBUTION (CGD)

Surplus domestic gas , if any could be used in CGD network for meeting

small industrial / commercial fuel requirements and if possible , replace LPGby piped natural gas ( LPG should go rural ). CNG may be environmentally

friendly , the solution for replacement of transportation fuels ( MS / HSD )

should hardly be by CNG- certainly not as economical as perceived to be as

the indirect costs in terms of conversion have to be factored in andcomparison should not

with an already skewed pricing of MS / HSD , but with their economic cost

of production . The best solution should be to use natural gas for

generating additional power requirements for feeding mass rapid

transportation system (MRTS) TO decrease avoidable per capital energy

consumption through cars and personal vehicle.

Gas Demand in city gas distribution sector

Gas Demand

11 12.0812.93

13.83

14.8 15.83

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

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Source: oil & gasjournal

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3. Proposal: Jagdishpur-Haldia Pipeline

Source: GAIL (INDIA) Ltd

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4. Jagdishpur-Haldia Pipeline

GAIL has already received the authorization in July, 2009 from MoP&NG for

laying Jagdishpur-Haldia pipeline. The authorized capacity for the above pipeline

is 16 MMSCMD including 4.0 MMSCMD as common carrier.

Jagdishpur-Haldia pipeline (JHPL) project has been conceptualized to cater to the

gas demand of consumers in the states of eastern Uttar Pradesh, Bihar, Jharkhand

and West Bengal. The gas source for the pipeline has been considered KG Basin

and ONGC Mahanadi Gas. This pipeline shall carry gas from ONGC Mahanadi and

KG Basin through Reliances Kakinada-Basudevpur-Howrah pipeline. The pipeline

will start from Haldia and terminate at Phulpur.

JHPL will originate from Haldia and will terminate at IFFCO; Phulpur. The gas

demand of IFFCO Phulpur will be met through JHPL. This will optimize the rout for

JHPL and enhance the capacity of existing Auraiya-Jagdishpur section by utilizing

Phulpur-Thulendi-Jagdishpur pipeline section for transportation of gas in reverse

flow in future.

The demand assessed for the above pipeline is 32 MMSCMD. The gas availability fromgas supply source

as indicated above will be about 30 MMSCMD and gas volume will be build up in

phases. Based on the above, it is proposed to implement the above pipeline in

phases based on availability of gas from source and gas sourcing tie-up. The design

capacity for JHPL in first phase is 16 MMSCMD and which will be augmented in

second phase from 16 to 32 MMSCMD.

Detail of phases are as follows:

Phase-1: (1860 km)

Laying Haldia to Phulpur pipeline with spur lines/feeder lines to CGS Kolkata, HFC

Durgapur, WBDPC Sagardighi, CGS Jamshedpur, FCI Sindri, CGS Ranchi, HFC

Barauni, Power Plant Barh, CGS Patna, CGS Chapra, CGS Siwan, CGS Gopalganj,

CGS Betiah, Power Plant Betiah, CGS Varanasi, and FCI Gorakhpur; CGS

Allahabad.

Phase-2: (190 km)

Installation of Compressor at Haldia with spur lines to CSES Haldia, WBPDC

Bandel, WBPDC Katwa, DPL Durgapur, SAIL Durgapur, and SAIL Bokaro &

Petrochemical Plant Barauni.

The design capacity of Haldia to Jagdishpur section in first phase is 16 MMSCMD.

The design pressure of pipeline is 99.93 Kg/cm^2g (98 barg) and arrival pressure of

gas at Haldia has been considered 70 kg/cm^2g initially and no gas compression

facility has been considered at Haldia in first phase. Hydraulic study for Haldia-

Phulpur section has carried out In-House and the optimized size for trunk line is

found

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to be 36 diameter.

The capacity of Haldia to Phulpur pipeline in second phase will be augmented from

16 to 32 MSCMD by installing compressor at Haldia and no intermediate

compressor has been envisaged in Haldia-Phulpur section. The gas will be boosted

from 54 kg/cm^2g to 98 Barg (99.93 Kg/cm^2g) at Haldia compressor station.

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The pipeline is designed for 32 MMSCMD, for

transportation & supply of gas at major demand

centers enroute pipeline from Haldia to Jagdishpur.

No spur lines are considered, only tap-off

point have been considered at major demand

centers enroute

4. 1. BasicParameters

Jagdishpur-Haldia pipeline. Arrival pressure of gas considered is 54-55 kg/cm^2g.

The pipeline diameter is 30 with length of 876 km. Compressor is also envisaged

at Jagdishpur for boosting pressure from 54 to 92 kg/cm^2g. Design pressure of

pipeline is 92 kg/cm^2g and has the provision for reverse flow including

augmentation of capacity in future by installing intermediate compressors on

availability of

more gas atJagdishpur

S.No Parameters Detail

1 Length-Trunk Line 800 km2 Trunk Line- Pipe Size 36

3 Name of States covered Uttar Pradesh, Bihar, Jharkhand, West Bengal

4 Products to be Re-gasified LNG, Natural gas

5 Delivery Pressure at 53 kg/cm^2g

6 Delivery Pressure at 45 kg/cm^2g

7 Economic Life 25 years

8 Benefits 1. No intermediate compressor2. Future capacity augmentation after installingintermediate compressor, if required.3. Can meet the gas requirement of Jagdishpur

customers.4. Reversal Flow allowed.5. Low Operating cost as compared to other optionsexplored for pipelines.

Source: GAIL (India) Ltd

The gas source for Jagdishpur-Haldia pipeline has been considered as KG Basin by

Reliance, Mahanadi by ONGC & KG Basin by GSPC. It is envisaged that this pipeline

will originate from Haldia and terminate at IFFCO, Phulpur. The gas demand of

IFFCO Phulpur will be met through JHPL. This connectivity will optimize the route for

Jagdishpur-Haldia pipeline and enhance in capacity of existing Auraiya-Jagdishpur

section and also effective utilization of Phulpur-Thulendi-Jagdishpur pipeline sectionin reverse flow mode in future.

GAIL has signed MoU for formation of JV with ONGC and MoU for Joint Corporation

with RIL for natural gas transmission available from ONGC Mahanadi and Reliance

gas from KG Basin respectively. The availability of gas from KG Basin by Reliance,

Mahanadi by ONGC and KG Basin by GSPC will be from

2012 onwards at Haldia and the total volume of gas available is expected in the

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range of 30 MMSCMD. The gas supply & laying of pipeline from Kakinada to Haldia

will be executed by Reliance and MoP&NG has given its authorization for the same

to Reliance.

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4. 2. Gas Supply Scenario

Gas source envisaged & projected available gas volume on the Jagdishpur-Haldiapipeline system is

given below:

Source Available Gas Volume(MMSCMD)2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

KG Basin 5.1 7.1 7.8 8.6 9.0Mahanadi Gas 0 5 10 20 20Total 5.1 12.1 17.8 28.6 29

Availability of gas from KB basin and Mahanadi

Gas from KG Basin

GAIL has signed MoU on15.03.2007 for formation of JV with RIL for natural gas

transmission available from KG Basin. RIL has already been receivedauthorization for laying pipeline in Kakinada- Basudevpur-Howrah section. RILs

production from KG Basin D6 block has been started and gas is being produced

in phases, initially 40 MMSCMD which may go up to 80 MMSCMD. This will be

used as a feeder line for supplying Reliances KG Basin gas from Kakinada to

Haldia. About 9.0 MMSCMD gas is expected at Haldia which will flow in Haldia-

Phulpur section to cater to the gas demand of some of the consumer enroute

Haldia-Phulpur pipeline.

Gas from ONGC Mahanadi

GAIL has signed MoU on 24.07.2007 for formation of JV with ONGC for natural

gas transmission available from ONGC Mahanadi. As per the information

gathered the availability of gas from ONGC Mahanadi will be from 2011-2012

onwards. Gas production from Mahanadi Basin is expected to be

20 MMSCMD and will flow through Haldia-Phulpur section to meet the gas demandin the states of

West Bengal, Jharkhand, Bihar & Uttar Pradesh pertaining to fertilizer, power,commercial, industrial

& city gas enroute Haldia-Phulpur pipeline.

Customer Tie-Up

GAIL has entered into HoA(s) for gas volume of about 30 MMSCMD enroute Haldia-

Phulpur pipelines which is about 93.75% of the pipeline design capacity. List of

HoA(s) is placed below. GAIL has signed MoU on 30.01.2009 with Indian Farmers

Fertilizers Corporation Limited (IFFCO) for jointly pursuing for setting up gas based

power plant at Betiah.

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About five fertilizer plants (HFC Durgapur, FCI Sindri, HFC Barauni, FCI Gorakhpur

and IFFCO Phulpur) are falling enroute Haldia-Phulpur pipeline. Availability of about

9.0 MMSCMD Reliances KG Basin gas can

be distributed to fertilizer plants enroute HPPL.

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Projected gas demand year wise by Marketing is tabulated below:

HoA(s)sign Gas In(MMSCM

2012-2013 2013-2014 2014- 2015- 2016- 2017-Total 8.15 15.78 18.18 20.58 22.99 24.00

Projected demand yearwise

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4. 3. Project Schedule and Cost Estimate

The detailed project schedule of completion of total pipeline system is 42 months fromthe date of

approval of the project (36 months from the date of notification).

S.No. Description of Pipeline system Estimated Cost Rs Cr Completiondate

/Commissioning

Phase-1:16MMSCMD

As perDFR(excluding IDC &MarginMoney forWC)

As perFinancialappraisal(including IDC &Margin Moneyfor WC)

date

1.0 Laying of pipelinefrom Haldia to

Phulpur along withspur lines /feederlines to Kolkata, HFCDurgapur, WBDPCSagardighi, CGSJamshedpur, FCISindri, CGS Ranchi,HFC Barauni, PowerPlant Barh, CGSPatna, CGS Chapra,CGS Siwan, CGSGopalganj, CGS

Betiah, Power PlantBetiah, CGSVaranasi, FCIGorakhpur & CGSAllahabad.

6163.84 6625.32 Dec,2011

/

March,20

11

Phase-2: Capacity 16 to32 MMSCMD

2.0 Installation of compressor atHaldia along with

spur lines to CSESHaldia, WBDPCBandel, WBDPCKatwa, DPLDurgapur, SAILBokaro &Petrochemical PlantBarauni

909.42 970.86Sept,2012

Dec,2013

Total 7073.26 7596.18

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The cost estimate for total project (Phase-1 +Phase-2) is Rs 7596.18 Cr (including

IDC and Margin Money for Working Capital) including Foreign Exchange component

of Rs 700 Crs.

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION 20105. Gas Throughput for Transmission Tariff-JHPL

5. 1. OPTIMAL PIPE SIZE:

In order to select an optimal size of a pipeline GAIL can look into three main

possibilities mentioned below:-

Option-1:-36 pipeline with compressor station at Haldia, & with followingconfiguration:-

No intermediate compressor

Delivery pressure at Phulpuris 53kg/cm^2g

It can meet the requirement of Jagdishpur

Customers. Delivery pressure of Gas at

Jagdishpur 45kg/cm^2g.

Benefits/Limitation:-

No Intermediate Compressor

Future capacity augmentation after installing intermediate

compressor, if required. Can meet the gas requirement of

Jagdishpur customers.

Reversal flow

Low Operating cost

Lowest Transport Tariff

Option-2:-30 pipeline with compressor station at Haldia and with

Two intermediate compressor stations at 106 km

and 206 km. Delivery pressure at Phulpur is78kg/cm^2g.

It can meet the requirement of 2.0MMSCMD gas flow of Indo Gulf FertilizersJagdishpur.


Two intermediate compressors, one at chainage of 106 km and second at

chainage of 226 km. Can meet the requirement of Jagdishpur customers.

Reversal Flow.

Highest operating

cost. HighestTransport Tariff.

Option-3:-36 & 30pipeline

36 pipeline up to Durgapur tap-off.

One intermediate compressor at chainage

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of 351km. Delivery pressure at Phulpur is

86kg/cm^2g.

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION

2010


One intermediate compressor at chainage

of 351 km. No reversal flow.

High Operating cost.

Transport tariff slightly higher compare to Option-1.

Considering on technical analysis and above mentioned details, 36 pipeline size

under option-1 was selected as optimal pipeline size for transportation of gas from

Haldia to Jagdishpur, it is also having potential for further augmenting the capacity

of pipeline in future on availability of more gas at Haldia.

30 pipeline size is limited to capacity up to 30 MMSCMD with two compressors.

The operating cost will also be higher in this case due to boosting of pressure of

gas at two locations.

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2010 5. 2. Proposed Pipeline System

Pipeline system has been designed for meeting the gas demand in various

sectors. Details are given below:

e) Fertilizers (HFC Durgapur, FCI Sindri, HFC Barauni, FCI Gorakhpur & DILKanpur)

f) Power (CESC Haldia, DPL Durgapur, WBPDC Bandel, WBPDC Katwa, WBPDCSagardighi & Barh

Power Plant)

g) Industries (SAIL Durgapur, SAIL Bokaro & Petrochemical Plant Barauni).

h) City Gas (Kolkata, Jamshedpur, Ranchi, Patna, Chapra, Siwan,

Gopalganj, Betiah Varanasi & Allahabad).

Phase-1:-

Installation of 36, 800 km trunk line from Haldia to Phulpur.

Installation of dispatch terminal at Haldia for transportation and supply of gasto customers

enroute Haldia-Phulpur.

Installation of spur lines / feeder lines.

a) 18, 70 km feeder line from Kolkata Tap-off (CH-40 km) to CGS Kolkata.

b) 30, 60 km spur line from Durgapur Tap-off (CH-226 km) to HFC Durgapur.

c) 24, 125 km spur line from Sagardighi Tap-off (HFC Durgapur) to

WBPDC Sagardighi. d) 12, 100 km feeder line from Jamshedpur Tap-

off (CH-226 km) to CGS Jamshedpur. e) 12, 25 km spur line from

Sindri Tap-off (CH-286 km) to FCI Sindri.

f) 12, 90 km feeder line from Ranchi Tap-off (CH-335 km) to CGS Ranchi.

g) 24, 60 km spur lines from Barauni Tap-off (CH-435 km near GAYA) to

CGS Patna Tap-off. h) 18, 70 km spur lines from CGS Patna Tap-off HFCBarauni.

i) 18, 70 km spur lines from Barh Tap-off (at 20 km up stream of 18 spurline to HFC Barauni)

to Barh Power Plant.

j) 18, 60 km feeder line from Patna Tap-off (at CH-60 km in 24 spur line toHFC Barauni) to

CGS Patna.

k) 18, 65 km feeder line from Tap-off (CGS Patna) to

CGS Chapra. l) 18, 65 km feeder line from Tap-off

(CGS Chapra) to CGS Siwan.m) 18, 30 km feeder line from Tap-off (CGS Chapra) to CGS Gopalganj.

n) 18, 35 km feeder line from Tap-off (CGS Gopalganj) to Power Plant

Betiah and CGS Betiah. o) 12, 25 km feeder line from Varanasi tap-off

(CH-685 km) to CGS Varanasi.

p) 18, 140 km spur line from Gorakhpur Tap-off (CH-735 km) to FCIGorakhpur.

q) 12, 40 km feeder line from Allahabad Tap-off (CH-770 km) to CGSAllahabad.

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Installation of Receiving Terminals (RTs)/Dispatch Terminals (DTs) at customer siteand also include City

Gate Station for city gas.

Phase-1:(1860 km)Laying Haldia to Phulpur pipeline with spur lines/feeder lines to CGS Kolkata, HFCDurgapur, WBDPC

Sagardighi, CGS Jamshedpur, FCI Sindri, CGS Ranchi, HFC Barauni, Power PlantBarh, CGS Patna, CGS Chapra, CGS Siwan, CGS Gopalganj, CGS Betiah, CGSVaranasi, FCI Gorakhpur & CGS Allahabad.

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Phase-I: (1860 km)

Part-I A: (1410 km)

Description of Pipeline System in First Phase Pipeline Configuration Demand(MMSCMCD)

Part-I: (1410 km)

Trunk Line

Haldia Phulpur 36", 800 km 16Spur lines/Feederlines

HFC Durgapur 30", 60 km 2.11

FCI Sindri 12", 25 km 2.11

CGS Patna tap-off 24", 60 km 0.25

HFC Barauni 18", 70km 2.11

Barh Power Plant 12", 25 km 0.50

Patna City Gas 18", 60 km 0.25

Chapra City Gas 18", 40 km 0.20

Siwan City Gas 18", 65 km 0.10

Gopalganj City Gas 18", 30 km 0.10

City Gas & Power Plant at Betiah 18", 35 km 0.10 + 1.50

FCI Gorakhpur 18", 140 km 2.11

IFFCO, Phulpur Connectivity in existing 1.60system

Note: The present IFFCO, Phulpur supply may be, swapped with new gasdemand pertaining to Auraiya-Jagdishpur Pipeline, such as DIL, Kanpur (1.9),SIOE (1.2) etc.)

Part-IB: (450 km)

Description of Pipeline System in First Phase Pipeline Configuration Demand(MMSCMD)

Part-II: (450 km)

Spur lines/Feeder lines

Kolkata City Gas 18", 70 km 0.50

WBDPC Sagardighi 24", 125 km 2.20

Jamshedpur City Gas 12", 100km 1.00

Ranchi City Gas 12", 90 km 0.20

Varanasi City Gas 12", 25 km 0.50

Allahabad City Gas 12", 40 km 0.25

Total 17.69

Phase-II: (190 km)

Phase-2:-

Installation of compressors at Haldia for boosting pressure from 54

kg/cm^2g to 98 barg (99.93 kg/cm^2g).

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Installation of spur lines / feeder lines.

a) 18, 15 km spur line Tap-off toCSES Haldia.

b) 18, 85 km spur line from Tap-off (CH-40 km) to

WBPDC Bandel.c) 18, 55 km spur line Tap-off (WBPDC Sagardighi) to

WBPDC Katwa. d) 12, 5 km spur line from Tap-off

(HFC Durgapur) to SAIL Durgapur. e) 12, 10 km spur

line Bokaro Tap-off (CH-335 km) to SAIL Bokaro

f) 12, 15 km spur line from Barauni Tap-off (HFC Barauni) toPetrochemical Plant Barauni.

Installation of Receiving Terminals (RTs) / Dispatch Terminals (DTs)

Description of Pipeline System in Second Phase Pipeline Configuration Demand(MMSCMD)

Haldia-Phulpur section Compressors

Installation of Compressor at Haldia

Spur lines/Feeder lines

CSES, Haldia 24", 15 km 4.2*

Kolkata City Gas Covered in PH-I 1.50

WBPDC Bandel 18". 55 km 2.00

WBDPC Katwa 18", 85 km 2.00

Durgapur Projects Ltd. 18", 5.0 km 4.50

SAIL Durgapur & Durgapur City Gas 12", 5.0 km 1.45

SAIL Bokaro 12", 10 km 1.07

Petrochemical Plant Barauni 12", 15 km 1.00

Varanasi City Gas Covered in PH-I, Part-II 0.50

Allahabad City Gas Covered in PH-I, Part-II 0.25

Total 18.47

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION 20106. PROJECTCOST

The financial appraisal of pipeline along with their spur/feeder lines has been

carried out along with tariff calculations as per PNGRB tariff regulations

guidelines. Details of methodology followed forarriving for Jagdishpur-Haldia pipeline along with spur lines as per PNGRB guidelinesare given below.

JHPL tariff has been determined considering a reasonable rate of

return on normative level of capital employed plus a normative

level of operating expenses in natural gas pipeline.

The rate of return on capital employed has been considered as 12%

(post- tax) andpre-tax return on capital employed has been computed by

grossing up 12% which works out to 18.18%.

The total capital employed includes working capital (equal to 30 daysof operating

costs and 18 days of receivables) which has been considered forcalculating tariff.

Levelized tariff has been calculated for Main Trunk Line and Spur

Lines up to 50 Kms range of Main Line (put together) and thus

corresponding capital cost, operating cost, receivables and working

capital have been considered together for arriving at the Levelized

tariff.

The capacity utilization has been assumed as60%,70%,80%,90%,100% in

1st,2

nd,3

rd,4

th& % 5

thyear of operations and thereafter respectively.

The economic life of the project has been considered as 25 years

of operations in case of first phase.

The levelized tariff has been arrived based on the Discounted cashFlow(DCF)

methodology equating the inflows from the projected revenue

earnings out of natural gas pipeline tariff with the outflows of the

capital and operating expenditures over the economic life of theproject by discounting these flows at the projects reasonable rate

of return(viz.18.18% pre-tax).

Capital employed includes Capex for pipelines besides Margin Money

for working

capital, Line Pack and interest during construction (IDC).

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29 | P a g

The major factor/assumption considered in the Financial Appraisal are as follows:

Debt: Equity 70:30Long Term Debt Interest Rate

10.25% Moratorium 1 year

Term of loan including moratorium 10years Income Tax Rate

33.99% Volume Build Up1

st

year2

nd

year3

rd

year4

th

year5th

year

60%70%80%90%100%

Project life 25 yearsUnaccounted Gas 0.60% of throughputProject IRR (Post-Tax) on capitalemployed as perPNGRB guidelines

12%

Capital Outflow

Year Deb Equit Total

2009-10 638.0 273.4 911.542010-11 2977.7 1276.1 4253.8612011-12 1063.4 455.7 1519.232012-13 638.0 273.4 911.54Total 5317. 2278. 7596.18

Cost Estimate & Operating Cost

A detailed Capital Cost estimate (Capex) & Operating Cost (Opex) have beenprepared for the proposed pipeline system for transportation of gas to meet the

gas demand of consumers and proposed city gas projects enroute Jagdishpur-

Haldia Pipeline.

The detailed cost estimate worked out to be Rs 7073.26Cr including foreign exchangecomponent of Rs

726.27Cr, details are given below:-

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S.No Description

EstimatedCost

(Capex)

Total Cost

(Rs Crores)

Fc Ic

1 Pipeline System:

Haldia to Phulpur Pipeline

138.77 3937.34 4076.11

2 Spur lines/Feeder Lines to:

CGS Kolkata 12.21 126.83 139.0

HFC Durgapur 13.46 229.83 243.2

WBPDC Sagardighi 14.66 330.15 344.8

CGSJamshedpur 6.99 104.75 111.74FCI Sindri 8.37 30.9

039.2

7CGS Ranchi 5.82 93.9

599.7

7HFC Barauni 19.97 311.44 331.4

1Power Plant Barh 5.49 28.8

934.3

8CGS Patna 15.59 99.5 115.1

CGS Chapra 4.82 82.0 86.8

CGS Siwan 4.54 75.2 79.7

CGS Gopalganj 4.64 47.68

52.32

Power Plant & CGS Betiah 9.60 57.7 67.3

CGS Varanasi 5.97 29.22

35.19

FCI Gorakhpur 12.71 244.83 257.54

CGS Allahabad 5.86 44.09

49.95

Total 289.47 5874.37 6163.8

Capex (Rs

Crores) Phase-

1:16MMSCMD

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Phase-2:-Augmentation of capacity from 16 to 32 MMSCMD

S.No Description

EstimatedCost

(Capex)

Total Cost

(Rs Crores)

Fc Ic

1 Pipeline System:

CompressorHaldia

379.27 135.94 515.21

2 Spur Lines/Feeder Lines to:

CSES Haldia 10.36 32.25

42.61

WBPDC Bandel 10.82 148.32 159.14

WBPDC Katwa 7.77 97.4 105.1

DPL Durgapur 11.79 16.5

6

28.3

5SAIL & CGS Durgapur 4.99 8.64 13.6

SAIL Bokaro 7.99 15.7 23.7

Petrochemical Plant Barauni 3.80 17.7 21.5

Total 436.79 472.61 909.40

Grand Total(Phase-1 +Phase-2) 726.27 6346.99 7073.26

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Operating Cost(Rs

Crores/Annum) Phase-1:-

16MMSCMD

S.No Description

EstimatedCost

(Capex)

Total Cost

(Rs Crores)

Opex

(Rs

Fc Ic

1 Pipeline System:

Haldia to Phulpur Pipeline

138.77 3937.34 4076.11

69.35

2 Spur Lines/Feeder Lines to:

CGS Kolkata 12.21 126.83 139.0 2.63

HFC Durgapur 13.46 229.83 243.2 4.54

WBPDC Sagardighi 14.66 330.15 344.81

6.08

CGSJamshedpur 6.99 104.75 111.74

2.21

FCI Sindri 8.37 30.90

39.27

1.43

CGS Ranchi 5.82 93.95

99.77

1.94

HFC Barauni 19.97 311.44 331.41

6.25

Power Plant Barh 5.49 28.8 34.3 0.94

CGS Patna 15.59 99.5 115.1 2.17

CGS Chapra 4.82 82.0 86.8 1.74

CGS Siwan 4.54 75.20 79.75 1.60

CGS Gopalganj 4.64 47.6 52.3 1.21

Power Plant & CGS Betiah 9.60 57.71

67.31

2.12


35.19

0.95

FCI Gorakhpur 12.71 244.83 257.54

4.76

CGS Allahabad 5.86 44.0 49.9 1.18

Total 289.47 5874.37 6163.84

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Phase-2:-Augmentation of capacity from 16 to 32 MMSCMD

S.No Description

EstimatedCost

(Capex)

Total Cost

(Rs Crores)

Opex

(Rs

Fc Ic

1 Pipeline System:

CompressorHaldia

379.27 135.94 515.21

147.66

2 Spur line/Feeder Lines to:

CSES Haldia 10.36 32.25 42.61

1.48

WBPDC Bandel 10.82 148.32 159.1 3.26

WBPDC Katwa 7.77 97.40 105.1 2.43

DPL Durgapur 11.79 16.56 28.3 1.26

SAIL & CGS Durgapur 4.99 8.64 13.6 1.04

SAIL Bokaro 7.99 15.73 23.7 1.18

Petrochemical Plant 3.80 17.77 21.57

1.16

Total 436.79 472.61 909.40

Grand Total(Phase-1+Phase-2

726.27 6346.99 7073.26


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2010 7. PROJECTFINANCIALS

7. 1. Total Revenues

Revenue details of the trunk line and other spur line has been arrived on the

demand estimated provided by technical team of GAIL (India) Ltd. and PNGRB

guidelines of capacity utilization, following table gives year wise revenues till year10 for trunk line and spur lines which are above 50 km in length.

The revenues for the project life are based on the estimated tariff/MMBTU.

Following table indicates revenue details of the project till year 10.

Revenue Details ofPipeline

Volume Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year

MMSCM ------------------------------------------------------------Rs

Trunk line and Spurlines which areunder the corridorof 50 kmrange

28. 00 1289.95

1504.95

1719.94

1934.93

2149.92

2149.92

2149.92

2149.92

2149.92

214992

HFC Durgapur-SAILDurgapur-DPLDurgapur- WBPDCSagardighi

10. 26 91. 97 107. 29 122. 62 137. 95 153. 28 153. 28 153. 28 153. 28 153. 28 153.

WBPDC-Katwa 2. 00 22. 45 26. 20 29. 94 33. 68 37. 42 37. 42 37. 42 37. 42 37. 42 37. 4

CGS Patna to Betiah 2. 25 84. 92 99. 07 113. 22 127. 38 141. 53 141. 53 141. 53 141. 53 141. 53 141.

WBPDC-Bandel 2. 00 15. 87 18. 51 21. 16 23. 80 26. 44 26. 44 26. 44 26. 44 26. 44 26. 4

HFC Barauni to Barah 3. 61 21. 55 25. 14 28. 74 32. 33 35. 92 35. 92 35. 92 35. 92 35. 92 35. 9

CGS Kolkata 2. 00 11. 43 13. 43 15. 24 17. 15 19. 06 19. 06 19. 06 19. 06 19. 06 19. 0

CGS Ranchi 0. 20 10. 31 12. 03 13. 75 15. 47 17. 19 17. 19 17. 19 17. 19 17. 19 17. 1

FCI Gorakh ur 2. 11 35. 62 41. 56 47. 49 53. 43 59. 37 59. 37 59. 37 59. 37 59. 37 59. 3

CGSJamshedpur 1. 00 13. 19 15. 39 17. 59 19. 79 21. 99 21. 99 21. 99 21. 99 21. 99 21. 9

Total Revenue 1597.27

1863.48

2129.70

2395.91

2662.12

2662.12

2662.12

2662.12

2662.12

266212

7. 2. Capital Expenditure

The capital expenditure of the project is computed based on the cost estimates provided bthe GAIL

technical team.

Cost of Compressor:

Total cost of the compressor is computed at Rs 490. 84 Crores which includes

compressor cost, compressor cooler, scrubber, fuel gas conditioning skid,

compressor valves & accessories, compressor piping, fitting and equipment,

electrical & instrumental items, utility items, compressor station construction cost

.

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Below mentioned table provides phase wise details of capital expenditure:

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2010

Particulars Phase-1 Phase-2 Total (Rs. Crs)

Haldia to Phulpur 3974. 14 0. 00 3974. 14

Compressor 0. 00 490. 84 490. 84

Survey 5. 35 0. 98 6. 33

Land and ROW 51. 61 9. 13 60. 74

PMC 54. 74 10. 36 60. 74

Plant & Machinery 1767. 97 335. 72 2103. 69

Owners Expenses 54. 74 10. 36 65. 10

Contingencies 96. 89 18. 28 115. 17

Line Pack 8. 91 1. 68 10. 59

TOTAL 6014. 36 877. 35 6891. 71

Total Interest

during

720. 15

Total working capital 25. 47

Total 745. 62

GRAND TOTAL 7637. 33

7. 3. Operating Expenditure:

Operating cost required for the operation and maintenance of the project of the

proposed Jagdishpur- Haldia Pipeline Project over its economic life is computed andfollowing table provides costs for various functional heads in phased manner.

InCrore

Total Operating expenditure

S. No. Description Total Phase-1 Phase-2

1 Trunk line 86. 84 86. 84 0. 00

2 Compressor 126. 38 0. 00 126. 38

3 Repair &Maintenan

36. 40 30. 60 5. 80

4 Manpower 9. 20 6. 00 3. 20

5 Security 0. 00 0. 00 0. 006 O&M Contract 0. 00 0. 00 0. 00

7 Insurance 11. 96 10. 03 1. 93

8 Overheads ofGAIL 9. 20 6. 00 3. 20

9 Fuel cons 0. 00 0. 00 0. 00

10 Power (75KW) 1. 14 0. 73 0. 41

TOTAL 281. 13 140. 20 140. 93

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION 20107. 4. Methodology for Tariff Calculation

The natural gas pipeline tariff shall be determined by considering a reasonable

rate of return on normative level of capital employed plus a normative level of

operating expenses in the natural gas pipeline

The unit rate of natural gas pipeline tariff to be charged for a period shall

be the calculated based on the Discounted Cash Flow DCFmethodology considering the reasonable rate of return as specified in the

regulation to be considered as projects internal rate of return.

The rate of return on capital employed shall be the rate of return on capitalemployed equal to

percentage post-tax. The rate of return on capital employed once applied

to a natural gas pipeline project shall remain fixed for the entire economic

life of the project.

The total capital employed shall be equal to the grossed fixed assets

in the project less

accumulated depreciation plus normative working capital (equal to thirty

days of operating cost excluding depreciation and eighteen days of natural

gas pipeline receivables).

The volumes of natural gas to be considered as divisor in the determination ofunit natural gas

pipeline tariff over the economic life of the project shall be computed on a

normative basis as indicated below.

The divisor for each of the first five years of operation of the natural gas

pipeline shall be arrived

by multiplying the applicable percentage utilization for the year, as per

the basis indicated below, with the sum of the capacity requirement of

the entity and the firmed up contractedcapacity with other entities as specified under the PNGRB Regulations 2008.

Year of Natural Gas Pipeline Percentage Utilization

First 60%

Second 70%

Third 80%

Fourth 90%

Fifth 100%

The divisor for the sixth and the subsequent years of operations of the

natural gas pipeline be equal to one hundred percent of the sum of the

capacity requirement of the entity or the actual

volume of the natural gas transported on common carriers

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Considering the present project configuration, the subsequent

capital cost and the profitability projections, the line wise transportation for 12%

(post-tax) return on capital employed are given in the following table:

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7. 5. Transportation Tariffs for Trunk Lines

Description Transportation Tariff

(Rs/MSC (INR/MMBTU)

Base Case: Gas volume,24 MMSCMD, excluding 8 MMSCMD as common carrierTariff for mainline and spur lines within the corridor up to 50 kmMain TrunkLine(Haldia toPhulpur)and spur lines/feeder lineswithin and upto 50km (CSESHaldia,WBPDC Bandel,

HFC Durgapur,CGSJamshedpur, FCISindri, CGSRanchi, SAILBokaro HFC

2771.42

83.15

Transportation Tariffs for Spur lines

Description Transportation Tariff

(Rs/MSCM) (INR/MMBTU)

Base Case: Gas volume,24 MMSCMD, excluding 8 MMSCMD as common carrierTariff for spur lines/feeder lines to beyond 50 kmSpur lines to:

-CGS Kolkata-WBPDC Bandel-HFC Durgapur-SAIL Durgapur-DPL Durgapur-WBPDC

Sagardighi-WBPDC Katwa-CGS Jamshedpur-CGS Ranchi-HFC Barauni-PE PlantBarauni-Power PlantBarh

348.03483.06545.51545.51545.51545.51

683.23803.243139.37363.22363.22363.222266.762266.76

10.4414.4916.3716.3716.3716.37

20.5024.1094.1910.9010.9010.9068.0168.01

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(Rs/MSCM) (INR/MMBTU)

CSES Haldia 2771.42 83.15

CGS Kolkata 3119.45 93.59WBPDC Bandel 3254.48 97.64HFC Durgapur 3316.93 99.52

SAIL Durgapur 3316.93 99.52

DPL Durgapur 3316.93 99.52

WBPDC Sagardighi 3316.93 99.52WBPDC Katwa 3454.65 103.65

CGS Jamshedpur 3574.66 107.25

FCI Sindri 2771.42 83.15

SAIL Bokaro 2771.42 83.15CGS Ranchi 5910.78 177.34

HFC Barauni 3134.64 94.05Petrochemical Plant 3134.64 94.05

Power Plant Barh 3134.64 94.05CGS Patna 5038.18 151.16

CGS Chapra 5038.18 151.16

CGS Siwan 5038.18 151.16

CGS Gopalganj 5038.18 151..16CGS Betiah 5038.18 151.16

Power Plant Betiah 5038.18 151.16


FCI Gorakhpur 3800.66 114.03CGS Allahabad 2771.42 83.15

39 | P a g


-CGS Siwan 2266.76 68.01-CGS Gopalganj 2266.76 68.01-CGS Betiah 2266.76 68.01-Power Plant 2266.76 68.01-FCI Gorakhpur 1029.24 30.88

(Conversion Factor: 33.3330 for CV of 84, 00 kcal/SCM; 1USD=48)

Levelized Transportation tariff

Description ofConsumers

Transportation Tariff(Mainline with tariff of spur line up to 50 km/Mainline tariff and additional tariff for spurlines beyond 50 km)

Transportation Tariff

The Levelized Tariff in respect of the consumers(trunk line tariff/zonal

tariff + customer connectivity tariff) of Dabhol-Bangalore pipeline for 12%

project IRR on capital employed(at,8400 kcal/SCM) as per PNGRB

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guidelines are given above.

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Applicable transportation tariff for pipeline for consumers enroute Haldia-Phulpur

pipeline will be in the tune of 83.15-177.34 INR/MMBTU, as tabulated above and the

tariff applicability will be subject to approval of the regulatory authority.

Marketing group confirms that the above tariff is applicable to gas consumers

and contract will be executed at this tariff.

The committee deliberated on tariff, it has emerged that presently tariff has beenworked out for 24

MMSCMD without considering common carrier gas volume i.e.8 MMSCMD. The

tariff calculated above will proportionally reduce on availability of common carrier

gas volume for transportation.

.

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION20108. MEANS OFFINANCE

The project is proposed to be funded by term loans from Banks/Financial

Institutions and equity contribution from internal resources in the ratio of 70:30.

The proposal means of finance for the project will be as under

Means of Finance

Means of Finance Total

Rupee Term Loan proposed @ 70% 5346. 13

Promoters Contribution through Internal 2291. 20accruals @ 30%

TOTAL 7637. 33

Equity Contribution:

The total amount of promoters contribution for the proposed expansion project is

estimated at Rs.2291. 20 Crores, which can be met from internal accruals.

Term Loan

The company proposes to raise Rupee term loans to the extent of Rs. 5346. 13

Crores from Banks & Financial Institutions to part finance the project.

The broad terms of the proposed loan is as given below

Nature of borrowing Rupee term LoanLoan Amount Rs. 5346. 13 Crore

Interest Rate 10. 25%Moratorium period 1 year

Tenor 8 years

Installments per year 4

Free Cash Flow Available

Based on the cash flow projection of GAIL for the next five years the free cash flowavailable with GAIL

for future projects has been arrived as detailed below (Assuming Debt Equity Ratio of

70:30).

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Free Cash Flow

S. No. Particulars 2009-10 2010-11 2011-12 2012-13 2013-14

1.

2.

3.

4.

5.

6.

7.

8.

Funds Available 5624 2980 3185 3027 2676

Total Capex 7957 9605 11412 73773509

Pipeline Project(Future Project ) 553 2463 6405 5310 1905

Total Capex (Excluding future Pipelines) 7404 7142 5007 2067 1604

Fund Commitment for equity excluding future Projects 2221. 20 2142. 60 1502. 02 620. 10

Availability of funds for future projects 3402. 80 837. 40 1682. 90 2406. 90 2194. 8

Requirement of fund for future project(JHPL) 278. 78 1321. 92 584. 83 274. 52

Cumulative Availability of funds for future projects 3402. 80 4240. 20 5923. 10

Cumulative Requirement of funds for future projects 278. 78 1600. 70 2185. 53

Surplus after meeting fund for future projects 3124. 02 2639. 50 3737. 57 5869. 95

Source: GAIL (India) Ltd.

It is observed that GAIL has sufficient cash to meet its equity obligation for the

proposed JHPL project. However GAIL have other pipeline projects which are in

process of approvals, it is therefore recommended to have check on the fund

availability for its equity contribution before the projects commissioned.


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9. BasicAssumption

Broad Assumptions:

Capital cost estimates for Jagdishpur-Haldia

pipeline project system have been provided by technical consultants of GAIL and as

on 2010. Further no escalation has been considered. However appropriate inflation

has been taken into account for overall

project development.

Construction Period 36 months

Interest rate on loans 10.25%

Debt: Equity ratio 70:30

Moratorium period 2 years of commissioning of

Project life 25 years

Corporate tax 33.99%

Depreciation method 3.17% p.a. Straight line method

IDC 720.15Unaccounted gas 0.60%

Statutory and Indirect costs including taxes and duties

Parameter Corresponding

Ocean Freight5%Inland Insurance 1%

Port handling charges 1.5%

Excise duty 8.24%

Service tax 10.3%

WCT 4.00%

Basic custom duty + additional CD in Cess 25.58%

No. of working days 365

Design Capacity:

As per authorization, the capacity of this pipeline is 16 MMSCMD (which is inclusiveof 4 MMSCMD for common carrier), however based on prevailing gas demand and

gas availability scenario, the design capacity for JHPL in first phase will be 16

MMSCMD and which will be augmented in second phase from

16 to 32 MMSCMD.

Line Pack:

Line pack has been estimated by GAIL and technical consultants of GAIL for JHPL

project. Total Line pack of Rs. 10.59 Crore has been considered with Rs. 8.91 Crore

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AGDISHPUR-HALDIA DEMAND ESTIMATION & TARIFF 201in Phase-1 and Rs. 1.68 Crore in Phase-2.

Line pack has been considered as part of capital cost and assumed to be

financed in the same proportion as the capital cost.

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Unaccounted Gas Losses:

A provision of 0.6% of the annual throughput has been assumed towards UnaccountedGas Losses.

Variable Costs:

Various variable costs incurred due to JHPL project has been considered.

Fixed Operating Costs:

Fixed operating expenses like: salaries & wages, Plan & Administrative overheads,

insurance, repairs and maintenance.

Escalation in operating costs:

The operating costs have been escalated at 5% per annum during operations

period to account for any increase due to inflation and other factors.

Operational life of project:

For the purpose of profitability projection, the operational life of the project has

been considered as 25 years from the date of commencement of commercialoperations.

Compressor replacement:

A provision of RS 490.84 Crore has been considered on the present cost ofcompressor for 15 years.

Depreciation Rates:

Depreciation has been considered at 3.17% (including for compressor) and

straight line method has been used to compute the depreciation.

Salvage value:The salvage at the end of 25 years has been assumed. For working capital it has beenassumed at 100%

and total line pack is added into total salvage value.

Income tax Rates:

Income tax estimation is based on corporate tax of 33.99%

Conversion Factor for transportation tariff

1 MMBtu 251996 kCal

CV 8400 kCal/ SCM

1 MMBtu 28 SCM1 MMSCMD 35715 MMBtu

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION 201010.Profitability Analys

isBelow mentioned tables would provide

estimated profit margins for the proposed

project. Separate profitability

details have been provided for Main line andSpur Lines

Key Project Financials for Trunk line till Year 10

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year

Revenue 1,290 1,505 1,720 1,935 2,150 2,150 2,150 2,150 2,150 2,150

Opex 248 262 276 290 305 320 335 351 368 386

Operating Margin 1,042 1,243 1,444 1,645 1,845 1,830 1,815 1,799 1,782 1,764

Depreciation 172 172 172 172 172 172 172 172 172 172

Amortization 2 2 2 2 2 2 2 2 2 2

EBIT 868 1,069 1270 1,471 1,671 1,656 1,641 1,624 1,608 1,590

Interest on Term 417 436 416 361 307 252 198 143 89 34

Interest on WC 8 9 11 12 13 14 14 14 14 14

PBT 443 624 844 1,098 1,350 1,390 1,429 1,467 1,505 1,541

Tax(@)33.99% - 91 193 302 407 437 464 489 512 533

PAT 443 533 651 796 943 953 965 978 993 1,008

HFC Durgapur-SAIL Durgapur-DPL Durgapur-WBPDC Sagardighi


Revenue 92 107 123 138 153 153 153 153 153 153

Opex 12 12 13 14 14 15 16 16 18 18

Operating Margin 80 95 110 124 139 138 137 137 136 135

Depreciation 12 12 12 12 12 12 12 12 12 12

Amortization 1 1 1 1 1 1 1 1 1 1

EBIT 67 82 96 111 126 125 124 123 122 122

Interest on Term 32 34 32 28 24 19 15 11 7 3

Interest on WC 1 1 1 1 1 1 1 1 1 1

PBT 34 47 64 82 101 105 108 111 115 118

Tax(@)33.99% - 7 15 23 31 33 35 37 39 41

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PAT 34 40 49 59 70 72 73 74 76 77

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WBPDC-Katwa


Revenue 22 26 30 34 37 37 37 37 37 37

Opex 3 3 3 3 4 4 4 4 4 5


Depreciation 3 3 3 3 3 3 3 3 3 3

Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 16 20 24 27 31 31 30 30 30 30

Interest on Term 8 8 8 7 6 5 4 3 2 1

Interest on WC 0 0 0 0 0 0 0 0 0 0

PBT 8 12 16 20 25 26 26 27 28 29

Tax(@)33.99% - 2 4 6 8 8 9 9 10 10PAT 8 10 12 15 17 17 18 18 18 19

CGS Patna to Betiah


Revenue 85 99 113 127 142 142 142 142 142 142

Opex 11 11 12 12 13 14 14 15 16 17


Depreciation 11 11 11 11 11 11 11 11 11 11

Amortization 1 1 1 1 1 1 1 1 1 1

EBIT 62 76 89 103 116 116 115 114 113 113

Interest on Term 30 31 30 26 22 18 14 10 6 2

Interest on WC 0 1 1 1 1 1 1 1 1 1

PBT 32 44 59 76 94 97 100 103 106 109

Tax(@)33.99% 0 6.906 13.773 21.191 28.371 30.565 32.585 34.453 36.19 37.813

PAT 32 37 45 55 65 66 67 69 79 72

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WBPDC-Bandel


Revenue 16 19 21 24 26 26 26 26 26 26

Opex 2 2 3 3 3 3 3 3 3 4


Depreciation 2 2 2 2 2 2 2 2 2 2

Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 12 14 17 19 22 22 21 21 21 21

Interest on Term 5 6 5 5 4 3 3 2 1 0

Interest on WC 0 0 0 0 0 0 0 0 0 0

PBT 6 8 11 14 17 18 18 19 20 20

Tax(@)33.99% 0 1.2935 2.5606 3.9281 5.2522 5.6454 6.0064 6.3395 6.6484 6.9362

PAT 6 7 8 10 12 12 12 13 13 13

HFC Barauni to Barah


Revenue 22 25 29 32 36 36 36 36 36 36

Opex 3 4 4 4 4 4 5 5 5 5


Depreciation 3 3 3 3 3 3 3 3 3 3

Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 15 19 22 26 29 29 29 28 28 28

Interest on Term 7 8 7 6 5 4 3 2 2 1

Interest on WC 0 0 0 0 0 0 0 0 0 0

PBT 8 11 15 19 23 24 25 26 26 27

Tax(@)33.99% - 2 4 5 7 8 8 9 9 9

PAT 8 9 11 14 16 17 17 17 17 18

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CGS Kolkata


Revenue 11 13 15 17 19 19 19 19 19 19

Opex 2 2 2 2 2 2 2 3 3 3


Depreciation 1 1 1 1 1 1 1 1 1 1

Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 8 10 12 13 15 15 15 15 15 15

Interest on Term 4 4 4 3 3 2 2 1 1 0

Interest on WC 0 0 0 0 0 0 0 0 0 0

PBT 4 6 8 10 12 13 13 13 14 14

Tax(@)33.99% - 1 2 3 4 4 4 4 5 5

PAT 4 5 6 7 9 9 9 9 9 9

CGS Ranchi


Revenue 10 12 14 15 17 17 17 17 17 17

Opex 1 1 2 2 2 2 2 2 2 2


Depreciation 1 1 1 1 1 1 1 1 1 1

Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 8 10 11 12 14 14 14 14 14 14

Interest on Term 4 5 4 3 3 2 2 1 1 0

Interest on WC 0 0 0 0 0 0 0 0 0 0

PBT 4 5 7 9 11 12 12 12 13 13

Tax(@)33.99% - 1 2 3 3 4 4 4 4 5

PAT 4 4 5 6 8 8 8 8 8 9

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FCI Gorakhpur


Revenue 36 42 48 53 59 59 59 59 59 59

Opex 4 5 5 5 5 5 6 6 6 6


Depreciation 5 5 5 5 5 5 5 5 5 5

Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 27 32 38 43 49 49 49 48 48 48

Interest on Term 13 13 13 11 9 8 6 4 3 1

Interest on WC 0 0 0 0 0 0 0 0 0 0

PBT 14 19 25 32 40 41 42 44 45 46

Tax(@)33.99% - 3 6 9 12 13 14 15 15 16

PAT 14 16 19 23 28 28 29 29 30 30

CGS Jamshedpur


Revenue 13 15 18 20 22 22 22 22 22 22

Opex 2 2 2 2 2 3 3 3 3 3


Depreciation 2 2 2 2 2 2 2 2 2 2

Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 9 11 14 16 18 17 17 17 17 17

Interest on Term 4 4 4 4 3 2 2 2 1 0

Interest on WC 0 0 0 0 0 0 0 0 0 0

PBT 5 7 10 12 15 15 15 15 16 17

Tax(@)33.99% - 1 2 3 5 5 5 5 5 6

PAT 5 6 8 9 10 10 10 10 11 11

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Combined P&L Account Statement


Revenue 1,597 1,863 2,130 2,396 2,662 2,662 2,662 2,662 2,662 2,662

Opex 289 304 320 337 355 372 390 408 428 449

Operating Margin 1,308 1,559 1,809 2,059 2,308 2,290 2,272 2,254 2,234 2,213

Depreciation 212 212 212 212 212 212 212 212 212 212

Amortization 5 5 5 5 5 5 5 5 5 5

EBIT 1,091 1,341 1,592 1,841 2,090 2,073 2,055 2,036 2,016 1,995

Interest on Term 524 548 522 454 385 317 248 180 111 43

Interest on WC 9 11 13 15 16 17 17 17 17 17

PBT 557 782 1,056 1,373 1,688 1,739 1,790 1,839 1,888 1,935

Tax(@)33.99% - 116 243 378 510 547 582 614 643 669

PAT 557 666 814 994 1,178 1,192 1,208 1,226 1,245 1,266

It is observed that if the project is executed as per the time lines defines and if

GAIL secures itself with marketing and distribution of the gas to defined capacity

then the estimated profit margins can be met easily. Below mentioned picture

reflects the projected profit margin for 10 years from the

commissioning of the project.

Profit After Tax (PAT)-Combined P&L

1600

PAT in Rs Crore

1400

1200

1000

800

600

PAT in Rs Crore

400

200

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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

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Projected Financial

Project IRR Project IRR Equity IRREquity IRR

Trunk line and Spur lines which are under the corridor of 50 km range 17.24% 12.00%

HFC Durgapur-SAIL Durgapur-DPL Durgapur-WBPDC Durgapur 17.18% 12.00% 34.40%

WBPDC Katwa 17.21% 12.00% 34.53% 27.02%CGS Patna to Betiah 17.19% 12.00% 34.41% 26.95%

WBPDC Bandel 17.22% 12.00% 34.61% 27.09%

HFC Barauni to Barah 17.36% 12.00% 35.21% 27.46%

CGS Kolkata 17.22% 12.00% 34.67% 27.15%

CGS Ranchi 17.23% 12.00% 34.62% 27.08%

FCI Gorakhpur 17.19% 12.00% 34.43% 26.95%

CGS Jamshedpur 17.25% 12.00% 34.78% 27.20%

As per the PNGRB Guidelines, 12% post IRR for the project has been fixed through-

out all the spur lines and Main line to arrive at the tariff.

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION 201011. SWOTANALYSIS

Strengths:

1. The project is being executed by GAIL, which is an existing profit making

company having a good track record and credibility.

2. GAIL is Indias largest gas transmission company with almost 80% marketshare.

3. The company is in complete value chain of gas business.

4. GAIL is also present in overseas for exploration business.

5. GAIL has market share of around 80% in natural gas market.

6. GAIL is supported by Government of India.

Weakness:1. As a Public Sector Organization, GAIL has the obligation to work within

the parameters of the policies and directions of the Government of India.

2. GAIL has to meet all their statutory requirements before a

commencement of commercial operations.

Opportunities:1. Resources in KG Basin and Mahanadi Basin ha increased the availability ofnatural gas.

2. There is a steady growth in demand for petroleum products.3. Pipelines projects can be leveraged for telecom business.

4. There is potential in cross country pipeline business.

Threat:1. GAIL is subject to threat of subsidy and pricing policy of ministry of petroleumand natural gas.

2. Raise in natural gas prices can lead to reduction in margin in petrochemical

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business.

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The major risk identified are delay in execution, increase inproject cost, firm gas tie -up with stream and downstreamagencies.

Investment Committee has deliberated on the above RiskAnalysis and is of the opinion that considering the past trackrecord of GAIL in executing the pipeline projects , timelypipeline completion can be achieved by having regularproject review at site, corporate and Management level.However, committee felt that considering large Capexinvolvement and debt services required, firm gas tie-up

with upstream and downstream consumer / transmissionagreement is critical for meeting the required levelrevenue generation to maintain financial viability of theproject and liquidity of the company.

In absence of firm gas supply agreement beforecommissioning the project and clear indication of likelyavailability of gas and the time line of such gas availabilityand completion of RIL's Kakinada-Basudevpur-Howrah pipelinewill affect the project IRR and the return on investment toGAIL. Availability of KG Basin/ONGC Mahanadi at Haldia isdepending upon the laying of Kakinada- Basudevpur-Howrah

pipeline by Reliance. However, GAIL has signed MoU with RILfor transmission of KG Basin gas and ONGC fortransportation of ONGC Mahanadi gas. Any failure or delayon the part of instillation of Kakinada- Basudevpur-Howrahpipeline and availability of low gas volume will affect theproject IRR and return on investment to GAIL. If the 60 % (1styear) to 100 % (6th year) capacity is not achieved due to gassourcing tie-up, GAIL will not achieve the minimum 12% IRRon the project

GAIL is currently executing DVPL-GREP expansion and layingDBNPL and CJHPL pipeline projects worth of Rs 14,500 Crore.

In addition, it is proposed to take up three new pipelineprojects at a cost of Rs 15,243 Crore. To finance theseexisting and new projects, GAIL has to resort to large debt.The total debt burden on GAIL will increase to estimated levelof Rs 20,000 Crore by 2012-13 from the current level of Rs1,100 Crore. Any mismatch due to lower capacity utilization ofthe pipeline due to non availability of sufficient gas orconsumers will result in reduced cash inflow/revenue and thusimpact the financial health and the liquidity of the company.

12.

RISK

ANALYS

IS

&

MITIGATIO

NSTRATEGI

ES

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13. Sensitivity AnalysisA sensitivity analysis has been carried out to ascertain the effect of the

following scenarios on the major financial parameters for the Main line / Trunk

Line. Following Table provides the analysis for parameter like Project IRR post

tax, Minimum DSCR and the

Average DSCR.

Sensitivity analysis has been

carried out to assess the

impact of changes in the

operating environment o

the project on its viability

The following

parameters were consideredfor this:

Particulars

Description Project

IRR

DSC

Minimum Average

Base 12 1.31 1.83

Case 1 Increase in the project cost by 5% 11.55 1.26 1.76

Case 2 Increase in the variable cost of the company by 5% 11.87 1.30 1.81

Case 3 Increase in term loan interest by 1% & WC interest 12.20 1.27 1.77

Case 4 Benefit under income tax section 80(IA) 17.42 1.31 2.10

Case 5 Increase in Tariff Price by 10% 13.25 1.42 2.02

Case 6 Decrease in Tariff Price by 10% 10.69 1.19 1.64

Case 7 Increase in revenue by 10% 13.25 1.42 2.02

Case 8 Decrease in revenue by 10% 10.69 1.19 1.64

Case 9 Change in gearing to 60:40 11.69 1.50 2.11

Case 10 Decrease in interest rate for term loan by 1% & WC 11.79 1.35 1.89

It is observed that availing benefit of Section 80 IA has a greater impact on the IRR of theproposed JHPL

project with Project IRR Post Tax at 17.40% as compared to Base case Project IRR post tax

at 12%.

Further it is observed that change in tariff price and / or revenue has good

amount of impact on the project IRR at 13.25%.

It is also evident that, project is highly sensitive to the volume. It is therefore

recommended that GAIL Marketing team should be ready with all consumer tie

ups before the start of the project.

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The sensitivity analysis shows that project IRR and DSCR levels are good in respect

to JHPL Project. However, the base case IRR and DSCR levels are robust enough to

withstand adverse variations in critical parameters, as stated above.

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JAGDISHPUR-HALDIA PIPELINE: DEMAND ESTIMATION & TARIFF DETERMINATION 2010

14. Conclusion&Recommendati

onsGAIL (India) Limited, is India's flagship Natural Gas company with a turnover of overRs 24,996/- Crores

As part of National Gas Grid (India) Limited now wishes to undertake Jagdishpur-

Haldia Pipeline Project with total investment of around Rs 7637.33 Crore proposed

to be funded at debt equity ratio of 70:30. The proposed Project loan is estimated

at Rs 5346.13 Crore, for which GAIL will approach Banks and Financial Institutions

to finance the proposed project. GAILs free cash flow is adequate to support the

required equity contribution.

GAIL (India) Limited have received authorization from Ministry of Petroleum &

Natural Gas (MoP&NG) for installation of Jagdishpur-Haldia Pipeline System for

transportation and distribution of gas from various sources like Reliance, ONGC

from KG Basin & Mahanadi Basin respectively for meeting the gas demand of

customers in this sector. The capacity available for this pipeline would be 32

MMSCMD (this includes 4 MMSCMD for common carrier).

In addition to this, as per the market projections and as estimated by GAIL, major

customer tie ups are done in this corridor to maintain the stability and there also

exists demand potential from various small and medium scale industrial units inand around the corridor of JHPL.

It is recommended that GAIL should enter into long-term Take or Pay contracts

with its prospective consumers for sale of natural gas with provision to cover

fixed cost in case of no off-take.

The consumer transportation tariff works out to Rs 2103.40/-MSCM to Rs

4457.92/-MSCM (Rs 63.11/- MMBTU to Rs 133.75/-MMBTU) which is in the

acceptable range for the consumers.

Since gas supply arrangements for the projects are not entirely in place, it is

suggested that GAIL enter into firm agreements before the commencement of theproject.

Timely completion of the project is must to avoid undue cost and to improve theprofitability of GAIL.

GAIL will be engaging respected EPC contractors and credible suppliers for

various equipments and other components of the project as to make the

project a viable one and complete in time.

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The economic viability of JHPL project has been examined as

envisaged by GAIL. The tariff has been calculated based on

PNGRB guidelines.

Based on the appraisal exercise, it may be concluded that:

Considering GAILs past and projected performance, the company is expectedto meet its debt

serving obligations towards the project.

The overall financial, liquidity and profitability parameters of the

project are considered reasonable and satisfactory.

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Subject to

1. Weakness and threats encountered and impact of the various scenarios as

analyzed under the sensitivity analysis.

2. Availability of consumers and gas from the proposed sources

3. Volume of gas availability based on the project requirement4. Meeting time lines of availability of gas with respect to project completion

5. Laying & availability of Reliance pipeline from Kakinada to Haldia.

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ANNEXURE-1: ENVISAGED MARKET

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Jagdishpur-Haldia

Capacity as per authorization: 16 MMSCMDS.No Custom Sector Location State 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 201

Phase 1

1 FCI Gorakhpur Fertilizer Gorakhpur UP 1.015 2.03 2.03 2.03 2.03 2.03 2

2 HFC Barauni Fertilizer Barauni Bihar 1.015 2.03 2.03 2.03 2.03 2.03 2

3 FCI Sindhri Fertilizer Sindri Bihar 1.015 2.03 2.03 2.03 2.03 2.03 2

4 HFC Durgapur Fertilizer Durgapur WB 1.015 2.03 2.03 2.03 2.03 2.03 2

5 West Bengal PowerDev.

Power Sagardighi WB 1.000 2.000 4.000 4.000 4.000 4.000 4.

6 DIL Fertilizer Kanpur UP 0.950 0.950 1.900 1.900 1.900 1.900 1.

7 Bhushan Steel Steel Jharkhand Jharkhand 0.009 0.009 0.009 0.009 0.009 0.009 0.8 JMT Auto Others amshedp Jharkhand 0.012 0.012 0.012 0.012 0.012 0.012 0.

9 Dina Iron & steel LtdDidargange

Others Patna Bihar 0.004 0.004 0.004 0.004 0.004 0.004 0.

10 Dadijis Steels Ltd Steel Patna Bihar 0.011 0.011 0.011 0.011 0.011 0.011 0.

11 Balmukund Concast Others Bihita Bihar 0.003 0.003 0.003 0.003 0.003 0.003 0.12 Patwari Udyog , Patna Others Patliputra Bihar 0.004 0.004 0.004 0.004 0.004 0.004 0.

13 Patwari Steel Pvt Ltd Steel Fatoah Bihar 0.001 0.001 0.001 0.001 0.001 0.001 0.

14 Patwari Forgings Pvt Steel Patliputra Bihar 0.000 0.000 0.000 0.000 0.000 0.000 0.

15 Sai Iron (India) Ltd Steel Patna Bihar 0.005 0.005 0.005 0.005 0.005 0.005 0.

16 Shriya International Oil&

Power Rai Bareily UP 1.214 1.214 1.214 1.214 1.214 1.214 1.

17 Bawani Paper Mills Others Rai Bareily UP 0.012 0.012 0.012 0.012 0.012 0.012 0.

18 Anjali Steels Steel Jaunpur UP 0.011 0.011 0.011 0.011 0.011 0.011 0.

19 Rania Industrial Area Others Rania UP 0.083 0.083 0.083 0.083 0.083 0.083 0.

20 Triveni Sheet Glass Others Allahabad UP 0.081 0.081 0.081 0.081 0.081 0.081 0.

21 UP Rajya Vidyut Nigam Power Kanpur UP 0.750 0.750 0.750 0.750 0.750 0.750 0.

22 Mohan steels Steel Unnao UP 0.500 0.500 0.500 0.500 0.500 0.500 0.

23 Hindustan NationalGlass

Others Rishra WB 0.090 0.090 0.090 0.090 0.090 0.090 0.

24 Exide Industries Ltd Others Haldia WB 0.005 0.005 0.005 0.005 0.005 0.005 0.

25 Hindustan Lever Ltd Others Haldia WB 0.005 0.005 0.005 0.005 0.005 0.005 0.

26 ALSTOM Others Durgapur WB 0.003 0.003 0.003 0.003 0.003 0.003 0.

27 Reckitt Benkeiser Ltd Others Asansol WB 0.007 0.007 0.007 0.007 0.007 0.007 0.

28 Durgapur Chemicals Power Durgapur WB 0.059 0.117 0.117 0.117 0.117 0.117 0.29 La Opela RG Ltd Others Madhupur WB 0.013 0.013 0.013 0.013 0.013 0.013 0.

City Gas Projects 0.500 0.500 1.000 1.000 1.000 1.000 1.

Sub Total(1) 9 15 19 19 19 19 1

Phase 2

1 SAIL Steel Bokaro Jharkhand 0 1.067 1.067 1.067 1.067 1.067 1.

2 WBPDC Power Katwa WB 0 1.000 2.000 2.000 2.000 2.000 2.

3 SAIL Steel Durgapur WB 0 0.578 0.578 1.156 1.156 1.156 1.4 WBPDC Power Bandel WB 0 1.000 2.000 2.000 2.000 2.000 2.

5 Culcutta Electric Power Kolkata WB 0 2.000 3.000 3.000 3.000 3.000 3.

6 Durgapur Projets Ltd Power Durgapur WB 0 2.980 2.980 2.980 2.980 2.980 2.

7 SAIL Steel Rourkela Orissa 0 0.214 0.427 0.427 0.427 0.427 0.

Sub Total(2) 0 9 12 13 13 13 1

Total(1+2) 9 24 31 32 32 32 3

8/9/2019 jhpl

78/80

59 | P a g

AGDISHPU

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